And worse still, to favour urea producers over decontrolled fertiliser units in gas allocation, exacerbating the nutrient imbalance The manner in which gas is allocated within the fertiliser sector smacks of arbitrariness. The Centre gives a uniform subsidy to all manufacturers, including those of decontrolled complex fertilisers, under the Nutrient Based Scheme (NBS) . Why, then, does it use a different yardstick for allocation of gas to manufacturers of urea on the one hand and decontrolled fertiliser on the other? A two-judge bench of the Delhi High Court has ordered the government to resume supply of natural gas to Deepak Fertiliser and Petrochemicals Corporation (DFPCL), a manufacturer of decontrolled phosphatic fertilisers, which was arbitrarily suspended last year. The bench has...
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Category: Production vs imports
Gas price loss is urea’s gain
It’s time to leverage the conditions. Freeing distribution and movement will also make a difference Under new pricing guidelines notified in October, 2014, the price of domestic gas was fixed at $5.61 per mBtu on net calorific value (NCV) basis with effect from November 1, 2014 — an increase of 33 per cent over the $4.2 per mBtu prior to that date. The price was applicable till March 31, 2015. The price was arrived at by taking a weighted average of gas prices in Henry Hub (the US), NBP (National Balancing Point, the UK), AGR (Alberta Gas Reference, Canada) and Russia. It was to be revised once in six months based on movement in these indices for a full year,...
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Domestic gas price cut – can help end urea mess
Under new pricing guidelines notified in October, 2014, the price of all domestic gas was fixed at US$ 5.61 per mBtu [million British thermal units] on net calorific value [NCV] basis w.e.f November 1, 2014 which was an increase of 33% over US$ 4.2 per mBtu prior to that date. The price was applicable till March 31, 2015. The price was arrived at by taking a weighted average of gas prices in Henry Hub [USA], NBP [National Balancing Point] [UK], AGR [Alberta Gas Reference] [Canada] and Russia. It was to be revised once in 6 months based on movement in these indices for a full year three months prior to the date of next revision. Thus, for price effective from...
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Plummeting gas price – golden opportunity for urea decontrol
Until last year, ballooning subsidy on fertilizers and its inevitable effect on fiscal deficit was haunting the government. The prime cause for this was control on selling price of urea on one hand increase in prices of feedstock and fuel on the other. The latter in turn was due to increase in international price of crude oil and imported LNG [liquefied natural gas]. During the current year, the scenario has turned for the better. Thanks to a constellation of forces leading to emergence of excess global supply, the international price of crude has plummeted from a high of around US$ 105 per barrel in June 2014 to below US$ 50 per barrel currently. And, there is nothing stopping the downward movement....
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Uniform gas pricing – precursor to full-fledged urea reforms?
In the CCEA (cabinet committee on economic affairs) meeting on March 31, 2015, the government decided on a uniform gas pricing policy and pooling of domestic and imported liquefied natural gas (LNG) for urea plants. Under it, gas will be supplied at ‘uniform’ delivered price to all urea plants on gas grid through a pooling mechanism. What do these announcements have in store for the industry? Does it mean Modi – dispensation has finally got cracking on big bang reforms in fertilizers after a 10 month wait and 2 full-fledged budgets? Currently, there are a total of 30 urea producing units in India. Of these, 27 are based on gas which is considered to be the most energy efficient and...
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Fertilizer subsidy – direct transfer ‘miles away’
Those of us expecting big bang announcement in budget for 2015-16 in regard to fertilizer reforms may have been disappointed. The budget for 2014-15 had mentioned that the government would set up an Expenditure Reforms Commission (ERC) on rationalizing subsidies. ERC under Dr Bimal Jalan ex-governor, RBI submitted its interim report about a month back which heightened the possibility of major initiatives being taken in this budget. Yet, in his speech, finance minister maintained a stout silence. Are we then to conclude that government has missed an opportunity to reform the sector yet again? Such a conclusion may be a bit premature if one were to take a cue from post-budget briefing of Chief Economic Adviser (CEA), Arvind Subramanian and...
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DE-CONTROLLING UREA PRODUCTION
Removing the archaic ceiling on urea prices, which is a political sop to secure votebanks, will energise domestic production. This, in turn, will ensure consistent supply and also lessen the public’s subsidy burden India was able to import only about 9,00,000 tonnes of urea between April and November, 2014, which was 16 per cent less than what was imported during the same period in 2013. This put tremendous pressure on local markets. The problem was aggravated by a drop in supply from the Oman India Fertiliser Company SAOG. At home, three naphtha-fed urea production plants viz, Madras Fertilisers Limited, Mangalore Chemicals and Fertilisers, and Southern Petrochemicals Industries Corporation, also had to stop production after the Government decided to suspend subsidy payments....
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Urea ‘black-marketing’ – tackle the root cause
During April–November, 2014, urea imports were 900,000 tons (16 percent) less when compared to corresponding period in 2013. The shortfall was aggravated by drop in supplies from OMIFCO (Oman-India Fertilizer Company) – a joint venture between IFFCO, KRIBHCO and Oman Oil Company (OOC) – with whom India has a long-term off-take agreement. This together with shortfall in domestic production (3 naphtha-based plants viz., Madras Fertilizers; Mangalore Chemicals & Fertilizers and Southern Petrochemicals Industries had stopped producing due to government’s decision to suspend subsidy payments) led to aggravation of imbalance in the demand–supply in the run up to Rabi season (October, 14 to March, 15). The result was proliferation of black-marketing especially in northern and eastern parts with urea selling at over...
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Self-sufficiency in fertilizers – a pipedream
For nearly 4 decades, successive governments have vowed to achieve self-sufficiency in production of fertilizers yet, this much trumpeted goal has eluded them barring a brief stint in early 90s. Will things be different under Modi – dispensation? Immediately after the present government took charge in May, 2014, fertilizer minister, Ananth Kumar reiterated the dire need for achieving self-sufficiency in fertilizers by re-invigorating sick plants of Fertilizer Corporation of India (FCIL) and Brahmaputra Valley Fertilizer Corporation of India (BVFCL) (earlier known as HFCL) both undertakings of central government. Both these undertakings have been incurring losses for several years in fact decades. Indeed, some plants under them viz., Ramagundum and Talcher (FCIL) and Haldia (BVFCL) were babies born sick. It would...
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We need a coherent urea investment policy
A burden: And nobody will gain from it – A MURALITHARAN The urea industry is in need of wholesome nourishment rather than the piecemeal changes the Centre has been offering October 26, 2014: In January 2013, the Government had notified a urea investment policy (UIP) for new greenfield projects; expansion of existing units; additional urea from revamp of existing units and revival of projects of sick public sector units of the Fertilizer Corporation of India (FCIL) and Hindustan Fertilizer Corporation (HFCL). Early this year, it made two amendments in the UIP. The first dispensed with the “dispensation of guaranteed buy-back”, while the second requires interested private companies to give a bank guarantee of ₹300 crore for every project, while PSUs...
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