Oman has halved the price at which it will sell natural gas to an Indian fertiliser plant in the Gulf nation to $1.5 per mmBtu but has added an annual escalation clause.
Oman, which had previously proposed to raise rates of gas sold to OMIFCO's urea manufacturing facility at Sur to $3 per million British thermal unit instead of present price of $0.77 per mmBtu, has revised its offer to charge $1.5 per mmBtu, sources in know of the development said.
The Gulf nation has also set a rider that gas price would be hiked by $0.5 every year till it reaches $3 per mmBtu.
Oman India Fertiliser Company (OMIFCO), a joint venture firm between Oman's state-owned Oman Oil Co (OCC) and Indian co-operative firms KRIBHCO and IFFCO, produces about 2 million tonnes of urea a year at Sur for exports to India
Oman had contracted to selling gas to the plant at $0.77 per million British thermal unit for 15 years beginning 2005 but mid-way decided to hike rates to $3 per mmBtu from January 1, 2012 citing firming up of prices in global market.
"Oman has agreed to cut the price to $1.5 per mmBtu from January 1, 2012 and under the new mechanism the rate would be $1.5 per mmBtu from January 1, 2012, and then the price would be increased by $0.5 per year till it reaches $3 per mmBtu," sources said.
After the price of gas touches $3 per mmbtu, which will be in the next 3-4 years, the annual escalation in the fuel rates would be equivalent to yearly US inflation rate or 3%, whichever is lower, they added.
The cost escalation in the price of urea would now be $19 per tonne. Presently India contracts the nitrogenous crop nutrient from OMIFCO at $130 per tonne, sources said.
Fertiliser Ministry has also proposed to the Cabinet to accept the price increase by Oman as it is much lower than the global rates of natural gas.
"We have sent a proposal to the Cabinet that the hike in gas price be accepted," a senior Fertiliser Ministry official had said.
The Ministry argues that even at $3 per mmBtu, the gas supplied by Oman is cheaper than alternative fuel sources. Long term gas supplies in the international market are no less than $18 per mmBtu.
The official said Cabinet, which may consider the proposal as early as this week, would decide if India should drag Oman to arbitration for breach of signed gas supply contract.
The ministry believes that Oman may snap gas supplies to the plant once arbitration is initiated the OMIFCO would have to buy fuel from international market during pendency of the suit.
Iffco and Kribhco holds a stake of 25% each in OMIFCO, while the rest is with Oman Oil Company.
"We are against the proposal of taking the matter to the International Arbitration Tribunal in London, as this could lead to disruption of supply from Oman," the official said.
OMIFCO ships around two million tonnes of urea, which is its entire production, to India under an agreement the country has with the Oman government.
