The government proposes to import urea to ensure adequate supply to farmers at subsidised price and stop subsiding the urea manufacturing units in case they continue to rely on naphtha for fuel. Accordingly there will be no new investments in naptha-based urea pants afresh.
According to official sources, the government is not in favour of extending the deadline for the domestic urea companies to switch over to gas from naphtha.
Official sources said that even if withdrawal of subsidy would hamper the production of urea in these plants, farmers would not get affected as the urea supply will be ensured from imported source.
As per the empowered committee of ministers’ meeting last year in September 2013, the domestic urea manufacturing units were time till June 2014 to switch over to gas-based plants from the current source of naptha under NPS III. NPS Stage-III seeks to promote the usage of natural gas, which is the most efficient and comparatively cheaper feedstock, for production of urea. To expedite conversion, the policy provides for non-mopping up of energy efficiency for a period of five years. In case of non-conversion, the policy dis-incentivises high cost production from non-gas based units by restricting their subsidy to import parity price of urea, after three years.
The policy also encourages setting up of joint venture projects abroad where gas is readily available at reasonable prices. It also recongnises the country's large import dependence in fertiliser sector and seeks to create a specialised agency to coordinate investments abroad in the fertilizer sector.
The supply of domestic gas to fertiliser sector, however, will be maintained at a level of 31.5 mmscmd and as per the projections on availability of domestic gas, the same is not going to increase substantially in the coming year. Officials added that pending gas pipeline connectivity, the urea manufacturing plants may consider tying up imported RLNG to meet their requirement. As regards domestic gas, the same shall be allocated as per the prevailing Gas utilisation policy.
Meanwhile, the ministry of petroleum and natural gas proposes to come up with a common policy for priority allocation for utilisation of natural gas procured across sources like administered pricing mechanism (APM), non-APM and New Exploration Licensing policy (NELP-X).
The policy to be worked out will have two major objectives– to maintain the current priority of allocation first. Secondly, the priority allocation will be to only to those sectors where either there is an element of government subsidy involved or end-use pricing of the product which uses natural gas is regulated. Subsidised natural gas will be given only to those sectors, said sources
Officials explained that ultimately the common policy for distribution will see to it that the benefit of priority allocation is given to either common users or government. The government should get the benefit so as to set off subsidy given to the sector. Explaining this, an official said, currently, fertiliser is a priority sector which receives subsidy from the government which gets netted off to the extent these companies especially urea receives domestic natural gas under priority allocation.
