Ceramic tile makers warm up to GSPL's offer on LNG price

Gujarat State Petronet Limited's (GSPL) gas grid project aimed at supplying Liquified Natural Gas (LNG) targeting the burning fuel issues of the triangular ceramic zone sprawling across Morvi, Wankaner and Thangadh, has been partially accepted by the consumers.

However, there is a long way to go for GSPL as ceramic companies are taking time in signing supply contracts.

While speaking to Business Standard on the latest situation in this regard, Velji Patel, MCTMA president, said, "Presently 19 companies have signed agreements with GSPL for buying LNG at Rs 23-Rs 24 per kilogram (Rs 18 per kg plus taxes). This is by and large in parity with the rates announced in Morvi last year. GSPL price is still Rs 10 less than the existing market price of Rs 32-Rs 33.

"If constant hassle-free supply of LNG is made available to the tiles and ceramic industry sprawling across the triangular zone of Thangadh, Morvi, Dhuva and Wankaner, we are sure of setting a world-class quality benchmark in manufacturing ceramic tiles. This would let us boost international trade, raise export revenues, further making it competitive globally and facing the Chinese aggression, added Patel.

At the time of foundation stone laying ceremony for the project in September last year, Gujarat chief minister Narendra Modi hailed it as, "The stone laying ceremony for the Saurashtra of 21st century. He had also assured that with the gas grid project in place, Morvi would surely emerge as the `crouching tiger' in the global ceramic trade and repulse the onslaught of Chinese dragon.

But that was not to be. Natural calamities badly hit fuel supplies from international and domestic circuit resulting in unprecedented price rise.

"With hurricanes like Rita and Katrina, disturbing the supply chain management of Western countries last year, crude prices flared, compelling marginal price hike in gas fuels consumed by the ceramic zone of Morvi and as a result majority of units deployed Chinese made coal gasifiers instead of the system utilising gas as fuel," says Velji Patel.

Following this, LPG, which was sold at Rs 24-Rs 29 per kilogram until October 2005, was sold at Rs 37-Rs 39 per kilogram from November 2005.

"As a result, our manufacturing cost which was already higher by 40% as against the Chinese products, flared phenomenally by another 25%-30% adding a total increase of 70%, not allowing us to sustain in the global competitive market," says Raju Patel of Phase Ceramics.

So, there is no way out but to adopt an option which could help us in reducing manufacturing cost, which would at least allow us to sustain the global pricing warfare.

As a result, majority of ceramic units operating on roller and tunnel kilns made up their mind to deploy Chinese made coal gasifiers and started using coal as a fuel option against LPG, adds Patel.

Obtaining calorific value to achieve consistency in manufacturing world-class quality ceramic products, majority of Morvi-based manufacturers used LPG, but somehow the same was achieved by burning double quantity of coal instead of gas.

"Which means we have to achieve 12K calorific value which we get by burning 1 kilogram of gas. But the same can be achieved by burning 2 kilograms of coal as 1 kilogram produces 6K calorific value. As coal costs Rs 6-Rs 7 per kilogram, we were spending almost Rs12-Rs14 on our fuel expenses. As a result, majority of manufacturers have deployed coal gasifier plants removing gas units, which almost reduced our manufacturing expenses drastically and our products are now almost in parity with the Chinese," says Jitu Patel, owner of a ceramic manufacturing unit.

Rubbing salt into the wounds, the Surat natural disaster hampered even domestic supply of gas.

As a result, almost 75%-80% units in Morvi alone have now switched over to coal gasifiers using coal as a fuel instead of gas, according to Patel.

Last financial year, Morvi contributed around Rs 55 crore towards sales tax and Rs 75-80 crore towards central government taxes. Despite this, the industry is in the doldrums today.

The Morvi-based entrepreneurs have installed Indian gasifiers, which cost Rs 50-40 lakh as against Rs 1-1.5 crore for Chinese ones.

While private players such as Reliance, Super Gas, IPCL, BPCL, HPCL supplied gas to ceramic manufactures on a credit period of 15 days, GSPL is demanding deposit for supply of gas for 40 days' consumption. This will result in shooting up of production cost by Rs 25. So it is not feasible at this stage, says Velji Patel.

However, after several rounds of meetings with GSPL officials over the last three months, almost 10% of manufacturers have signed agreement with GSPL for buying LNG.