Urea producers in the country are awaiting government policy for firm allotment of natural gas to formulate their future plans of growth.
“As of now, gas is available for the operations of the existing fertiliser units. However, we are waiting for concrete government policies on allocation of gas for planning our future projects,” director and chief operating officer of Nagarjuna Fertilizers and Chemicals Limited (NFCL), R S Nanda, said.
He told Business Standard that firm allotment of gas was necessary for achieving financial closure of fertiliser projects and “we are currently holding discussions with the government in this regard.”
The Centre had come out with a new investment policy for urea in 2008 to attract investments in the sector. However, there had been no significant flow of investments so far in the light of the ambiguity over allocation of natural gas.
At present, six companies including Iffco, Kribhco, Rashtriya Chemicals and Fertilizers, Indo-Gulf Fertilizers, Tata Chemicals and Chambal Fertilizers and Chemicals have requested the government for firm allotment of gas for taking a final investment decision to undertake expansion of their existing units.
The Ministry of Chemicals and Fertilisers stated that the issue had been taken up with the Ministry of Petroleum and Natural Gas. Last year, the Empowered Group of Ministers had also decided that fertiliser units would be supplied natural gas as and when they were ready to utilise the gas.
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Following the announcement of the new urea policy, manufacturers of nitrogenous fertiliser revamped their capacity resulting in an increase in total production to 21.1 million tonne (mt) from about 20 mt in 2008-09. The industry expects that this capacity will increase to over 22 mt in the current year.
However, in spite of the increase in capacity, domestic fertiliser units cater to only 70 per cent of the demand for urea. Nanda said the demand-supply gap would be reduced substantially in the coming years when additional capacities would be created.
With the availability of natural gas, the government also envisaged that the existing units will increase capacities, closed units will be revived and new projects will be set up, taking the overall production of urea in the country to over 31 mt a year.
As the quantum of subsidy passed on to the farmers is dependent on the cost of production, supply of gas for fertiliser units is stated to be crucial in bringing down the production costs and thus the subsidy amount.
Currently, there are 28 urea producing units in the country, of which 20 are gas-based requiring 40.92 mmscmd of natural gas. The government has allotted about 15 mmscmd of gas from Reliance Industries Limited (RIL) K-G basin, while the remaining quantity is being supplied by other indigenous producers.
NFCL estimates that the government will be able to save a subsidy amount of Rs 4,400 crore in the current year due to continued supply of gas to the manufacturers of urea.
According to NFCL executives, allotment of RIL gas to the urea makers is expected to result in saving a subsidy amount of Rs 3,000 crore this year. An additional Rs 1,400 crore will be saved through the supply of natural gas from other producers.
Urea cornered a subsidy amount of Rs 25,258 crore in 2009-10. This is more than one-third of the total amount of Rs 64,032 crore spent by the government on fertiliser subsidy during the year.
On account of drought, urea consumption last year declined to 26.44 mt from 26.65 mt in 2008-09. Given the prediction of good monsoons, Nanda said there could be a 3-5 per cent increase in consumption in the current year.