Non-urea producing fertiliser companies Rashtriya Chemicals and Fertilisers, Deepak Fertilisers and Gujarat State Fertiliser Company will now have to share their profits from cheaper KG-D6 natural gas with the government. Besides, merchant power plants that sell electricity at market rates will not get the benefit of cheaper domestic gas, though non-priority consumers will continue to get their supply.
These decisions were taken at a late evening meeting of an empowered group of ministers (EGoM), headed by Finance Minister Pranab Mukherjee, which discussed the situation arising out of falling domestic gas production.
“We wanted to take a view whether natural gas can be diverted from non-Nelp (new exploration licencing policy) fields. We came to the conclusion that there was not much gas to be diverted even from non-NELP fields. The EGoM decided to leave the decision to the ministry of petroleum and natural gas,” Petroleum Minister Jaipal Reddy told reporters after the meeting.
Reddy said the ministry had applied the principle of priority when the gas output from KG-D6 came down. RIL-operated KG D6 gas field produces 34.5 mmscmd of gas (against 53-54 mmscmd a year ago), which is expected to fall to an all-time low of 27 mmscmd by April-May due to issues with the reservoir. Though the EGoM decided against making any allocation to merchant power plants, which do not have power purchase agreements (PPAs) with distribution companies, it decided to retain gas allocation to Lanco’s Kondapalli and GMR’s Tanir Bawi plants, which have signed short-term PPAs with distribution companies in Andhra Pradesh.
At a meeting with a committee of secretaries earlier this week, private power producers had demanded immediate allocation of gas to all projects recommended by the power ministry that amounted to 25 million standard cubic metre a day (mmscmd) and assurance of gas to remaining projects which are under construction and will be completed in 2012-13. They had also demanded reallocation of APM (pre-NELP) gas (18 mmscmd) from non-core sectors to the power sector. They wanted long-term gas supply agreements be signed in line with the government directive for coal and bulk liquefied natural gas imports be undertaken to fulfill demand in the short term.
However, Reddy said the country had limited capacity for bringing in gas. “In 2012-13, we will be able to increase imports by seven to eight mmscmd.”
In the case of non-urea fertiliser units, the petroleum ministry had argued supply of cheaper domestic gas to units manufacturing phosphorus and potassium should be suspended, as these units are making undue profits. In the case of the two fertilisers, the subsidy is capped and cheaper input gas does not reduce the subsidy burden of the government.
The fertiliser ministry had argued if domestic gas was not available to plants manufacturing phosphorus and potassium, such plants would have to use spot imported gas at $18 per million British thermal unit, leading to high prices and, therefore, plant closures. It suggested the petroleum ministry should continue allocation of domestic gas to all fertiliser plants even if they are producing non-urea grades.
The ministry had proposed any domestic gas, either new or diverted from non-core sectors, be first given towards replacement of imported regassified liquefied natural gas. According to the ministry, every $1 reduction in the price of a unit of gas can lead to an annual subsidy saving of Rs 120 crore for a 1.2-million tonne plant.
