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The government on Tuesday announced a uniform gas pricing policy and pooling of domestic and imported natural gas for urea plants in India.
At a meeting, the Cabinet Committee on Economic Affairs approved a policy under which gas would be supplied at a uniform delivered price to all fertiliser plants on the gas grid for production of urea through a pooling mechanism. It was expected the cost of urea production at the pooled price would be less than the price of imported urea, which would encourage existing urea units to produce beyond their reassessed capacity, said an official statement.
The government also decided to revive the Barauni unit of Hindustan Fertilizer Corporation and the Gorakhpur unit of Fertilizer Corporation India. These units, defunct since 2004, will be revived through the bidding route, with an investment of Rs 5,000-6,000 crore each. These will generate employment for 500 direct and 2,500 indirect workers.
It is expected the pooling will augment indigenous manufacturing capacities and help revive the Gorakhpur, Barauni and Sindri urea plants. These three plants will serve as anchor-load customers for the Jagdishpur-Haldia pipeline. Work on this pipeline, approved in 2007, is expected to start soon.
The Department of Fertilizers has estimated Tuesday's decision will lead to additional production of 3,713,000 million tonnes (mt) of urea in existing fertiliser units through the next four years (2015-16 to 2018-19). This will reduce import dependence to the same extent and save Rs 1,550 crore of subsidy. Currently, of the 30 urea-producing units in India, 27 are gas-based, while three -Mangalore Chemicals & Fertilizers, Madras Fertilizers and Southern Petrochemical Industries - are naphtha-based. Of the total consumption of about 30 mt per year (mtpa) of urea, 23 mtpa is produced in the country; two mtpa is imported from Oman, under the urea offtake agreement, in place till 2020. The shortfall of about five mtpa is met through imports.
In 2017-18, urea demand is projected at 34 mtpa and by 2024-25, it is expected to stand at 38 mtpa.
It is estimated the saving in subsidy outgo due to revised energy norms of urea units will be Rs 6,979 crore during the next four years (2015-16 to 2018-19).
The government said the need for Tuesday's intervention arose because currently, the price of gas supplied to fertiliser units varied across plants, depending upon the combination of domestic gas and regasified liquefied natural gas. Therefore, there was no uniformity in input prices. Further, there was wide variation in the conversion efficiency of plants. As the variation in final urea production costs was the result of variation in two factors (gas price and conversion efficiency), it was necessary to separate the two.
