For the first time, the departments of fertilisers and expenditure have joined hands to thwart the proposal of Gas Authority of India Ltd (GAIL) to cut firm allocation of natural gas to the Gujarat Narmada Fertiliser Corporation and the Kalol unit of Indian Farmers Fertilisers Cooperative.
In a landmark decision, the gas linkage committee (GLC) observed that in case of fertiliser units, the average gas supply of previous months should be maintained.
If any cuts are required, these should be effected only with the prior approval of GLC.
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Instead, GLC has decided to cut firm allocation of gas to other consumers in north and south Gujarat, including the power sector.
From now on, only 40 per cent of the allocation to non-fertiliser consumers will be on firm basis whereas the rest of the supplies will be on a fallback basis.
GAIL had proposed a uniform cut for all the units in the north and south Gujarat in view of the reduced supply of gas in these regions.
The decision, not to cut gas allocation to fertiliser units, despite a sharp cut in supplies, firmly establishes priority to fertiliser units in allocation of gas over power projects.
Henceforth, all future GLC meetings will use this decision as a benchmark in allocating gas to various units.
The fertiliser industry has been demanding this prioritisation for many years, but the petroleum ministry has not been favourably inclined to it.
What swung the GLC decision in favour of urea manufacturers was the fact that the expenditure department backed the fertiliser department's view that cutting allocations would only add to the subsidy bill as gas would have to be replaced by naphtha or fuel oil by fertiliser units in order to maintain output schedules.
As feedstock prices are a pass through, a higher feedstock bill will have to be finally footed by the expenditure department.
It has been estimated by the fertiliser department that the government can save Rs 1,300 crore every year in fertiliser subsidy bill if gas allocation to urea units are equal to their actual requirement.
The department has also been demanding priority over the power sector in the allocation of gas arguing that fertiliser units make a fuller use of the gas than any other user.