11 urea companies to get Rs 500 crore on settling gas marketing issue

Eleven urea manufacturing companies will get around Rs 500 crore as reimbursements after the Union Cabinet last week approved the determination of marketing margin on the supply of domestic gas to fertilizer (urea) units from May 1, 2009, to November 17, 2015.

The marketing margin is charged by gas marketing companies from consumers over and above the cost of gas for taking on the additional risk and cost associated with the marketing of gas.

Fertiliser industry representatives said the gas supplied from the KG-Basin in Andhra Pradesh to these 11 firms between 2009 and 2015 for which the private supplier was paid a marketing margin at the rate of 15 cents per metric million British thermal units (mmBtu).

However, this marketing margin was not reimbursed to the companies by the Department of Fertilizers while calculating the cost of production of making urea during that period. Gas is the main source that goes into the making of urea.

Industry sources said they represented their case where the fertilizer ministry explained the reimbursement was held back because gas prices were determined by the Ministry of Petroleum and Natural Gas (MoPNG), which approved the basic gas price, but not the marketing margin.

MoPNG, the fertiliser industry players clarified that approving the marketing margin for the gas supplied by a private player wasn’t possible as it was not part of the agreement with the gas producers.

The matter dragged on for several years between the two ministries and the industry.

Fertilizer industry sources said the marketing margin for the gas supplied by state-run companies at the rate of Rs 200 per 1,000 cubic meters was getting duly reimbursed since 2010.

After several rounds of negotiations, a consensus was reached and the Department of Fertilizers agreed to reimburse the marketing margin between 2009 and 2015 at a rate that it was doing for gas supplied by state-run firms at Rs 200 per cubic meters (on volume basis).

“The marketing margin has been approved without any interest. But, it should be acceptable to the industry since the matter has dragged on for 14 years,” Dr S Nand, an industry expert, told Business Standard.

The marketing margin was reimbursed without any interest from 2009 to 2015.

“In line with the government vision of ‘AatmaNirbhar Bharat’, this approval will incentivize manufacturers to increase investment, which will lead to self-sufficiency in fertilizers, and provide an element of certainty for future investments in the gas infrastructure sector,” an official Cabinet statement said.

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