RCF, NFL up 6-7% on plan for pool gas price for fertiliser

Stocks like Rashtriya Chemicals & Fertilizers (RCF) and National Fertilisers jumped 6-7 percent intraday on Thursday after the Oil Ministry has proposed to pool gas price for fertiliser plants. After power, the Oil Ministry has moved a proposal to pool or average out prices of domestic natural gas and imported LNG used by fertiliser plants to make the cost of fuel uniform and affordable.

Fertiliser 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 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.

This would help in focusing on improving plant efficiency and may help in price advantage in sourcing of LNG.

To make this arrangement effective, the ministry has proposed waiver of customs duty on import of LNG for fertiliser units and natural gas being covered under Declared Goods thereby drawing levy of 4 percent central sales tax and not differential rates of state sales tax or VAT, they said.

Also, service tax on imported LNG for pool be waived. These tax proposal would alone bring down the cost of imported gas by USD 0.75 per million British thermal unit.

Presently, a proposal to pool gas prices for power plants is under consideration of the government.

Sources said the ministry has proposed to make state- owned gas utility GAIL India as the pool operator. The Department of Fertiliser will determine the total requirement of natural gas and draw plant-wide requirement, which would then be informed to the pool operator, GAIL.

The pool operator will tie-up imports after considering domestic availability and after averaging out price of both, delivery the fuel at uniform rate to all plants.

The ministry wants the pooling mechanism to be effective from April 1.

Also, an Empowered Pool Management Committee (EPMC) comprising representative of oil ministry, department of fertiliser, department of expenditure and GAIL. This committee would approve the plant-wise gas supplies to be made under gas pool mechanism and LNG purchases.

There are 30 urea producing units in the country, of which 27 are gassed based and three run on naphtha. Out of total consumption of about 30 million tons per annum of urea, about 23 million tons is produced in the country.