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Gas prices to be $2-3/mmBtu higher post gas-pooling: RCF

After power, the Oil Ministry has moved a proposal to pool or average out prices of domestic natural gas and imported LNG used by fertilizer plants to make the cost of fuel uniform and affordable.

February 23, 2015 / 09:59 IST
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After power, the Oil Ministry has moved a proposal to pool or average out prices of domestic natural gas and imported LNG used by fertilizer plants to make the cost of fuel uniform and affordable. Fertilizer plants consume about 42.25 million standard cubic meters per day of gas for manufacture of subsidised urea. Out of this, 26.50 mmscmd comes from domestic fields and the rest 15.75 mmscmd is imported liquefied natural gas (LNG). The new policy is likely to come into effect from April 1, 2015.Speaking to CNBC-TV18 about the proposal and its impact on RCF, RG Rajan, CMD of the company said gas prices will go up by USD 2-3/mmBtu post gas-pooling. The USD 4.2 per million British thermal unit price of domestic gas is about one-third of cost of LNG. The cost of gas, which is the most important component for production of urea, varies from plant to plant owing to differential rates at which imported LNG is contracted as well as cost of transportation. The proposal moved for inter-ministerial consultations, before being put up to the Cabinet Committee on Economic Affairs (CCEA), calls for averaging of different rates of domestic and imported gas to ensure supply of fuel to all urea plants at a uniform delivery cost, sources said.

Below is the transcript of RG Rajan's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18. Latha: Take us through this entire gas pooling scheme, is it going to be of advantage or will it only push prices up for you? A: The gas supply to all urea based fertiliser plants will be pooled and all the plants will receive gas at uniform price. This pooling will be done by the Fertiliser Industry Coordination Committee (FICC). Some plants will have to pay higher price for gas and some plants will get it at a little cheaper rate. However ultimately since the gas price is pass-through for urea, there won’t be much impact on the companies but all the plants will receive gas at an uniform price and maybe in the future, this step will help to go for the nutrient-based subsidy (NBS) for urea. After two-four years we can go for NBS for urea. Latha: But immediately what will be the push in cost, even if it is a pass-through what exactly is going to be the increased cost for you because if not anything, it will at least impact your working capital requirements right because it takes a while before the money is returned by the government? A: It will have some impact on the gas cost. I think the gas price will go up by roughly around USD 2-3 per mmbtu and cost of gas may go up by Rs 750-1000 crore. Sonia: What are the current plants, which are functioning and at what capacity for RCF? A: We have got two plants at Thal and Trombay and both the plants are running at 100 percent load and beyond 100 percent load. Latha: If this pooling happened, is there an advantage in terms of volume of gas availability? A: It will be good especially for the new plant because the government has come with the new policy for putting up new urea plants. If the entire gas is pooled, it will be good for the existing plants and also the new plants coming up because then the gas price will become more affordable. Latha: Once gas pooling comes through, will you be increasing your investments in terms of higher capex etc in order to go to full capacity? A: We are already at full capacity but we want to put up one plant based on gas at Thal III and we have prepared a detailed project report (DPR) for the project and we hope to go ahead in the next couple of months.

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Latha: Do you think that imported prices of urea, imported urea will now get a lot cheaper because of the global crash in fuel prices? A: At the present, the urea prices are at quite a low level -- I think they will be at the same level till the foreseeable future. Sonia: The ministry has proposed that the custom duty on imported liquefied natural gas (LNG) will be waived off, how much could that bring the price down to and how much of a relief will it be for you? A: I think around 5 percent is the custom duty on LNG and definitely to that extent, depending on the LNG price maybe USD 0.5 or USD 1 per mmbtu, the price may come down. Roughly around Rs 1,000 crore or Rs 1,500 crore cost may come down for the imported LNG. Latha: Is any progress being made on this? For the longest time for many months we have heard about this pooling of gas and the related tax benefits that the government is thinking of, one is the customs duty angle, the other one is waiving of value added tax (VAT) and other state level taxes by declaring it a declared good, is there any progress made? A: Progress has been made. Latha: Are states on board, will they agree if it is to be brought in as a declared good, will all the states be on board? A: I cannot answer that but as far as I know, government is very serious and from April 1, the new financial year this new policy should be there in place.

first published: Feb 20, 2015 11:04 am

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