Imports cheaper at $5 mBtu: Ministry

Fertilisers dept opposes market-driven gas pricing.

The department of fertiliser has said gas priced at over $5 per million British thermal unit (mBtu) will force the country to remain import-dependent.

"It is a question of make or buy. Beyond $5 per mBtu, it becomes cheaper to import fertilisers rather than spend huge amounts of money in setting up fertiliser plants," an official in the fertiliser department said.

The country imported around 5 million tonnes of fertilisers last year. Imports are likely to be higher this year.

Reliance Industries (RIL), which is set to produce gas from the first discovery in the country's deepwaters, has "discovered" a well-head price of $4.33 per mBtu, which would work out to a delivered price of between $5.2 per mBtu and $6.2 per mBtu after paying taxes and transportation tariffs in different parts of the country.

The gas price has been challenged by both the fertiliser and power ministries. A committee of secretaries is reported to have submitted its report on the issue to the Prime Minister's Office, which is likely to take a final call on the issue.

The fertiliser department is also keen to set up plants overseas, and is in advanced stages of talks with the governments of Nigeria, Algeria and Egypt. Nagarjuna Fertilisers is likely to build the plant in Nigeria.

In India, since labour and operating costs are cheaper, setting up a fertiliser plant in the country has a cost advantage of around $72 per tonne compared with abroad. This advantage means fertiliser companies in India can afford to pay around $2.5 per mBtu more for gas.

If the gas price in India is around $5 per mBtu, at which the fertiliser department says it can afford to buy the gas, the cost at which a new plant in Nigeria, for example, can buy gas would be around $2.5 per mBtu.

"We can get gas in Nigeria for under $3 per mBtu. That would make the plant viable, despite the $3.5 per tonne freight and port handling charges," the fertiliser department official said.

A fertiliser industry official confirmed that gas can be bought at around $3 per mBtu in Nigeria but said the political unrest made the country unsuitable for setting up plants there.

"There is no guarantee of a contract lasting the entire length," the official, who did not want to be named, said.