The fertiliser sector has been hit by another blow. The Empowered Group of Ministers (EGOM), headed by finance minister Pranab Mukherjee, in a fresh gas allotment plan, has allocated maximum of amount of gas available from the KG Basin to the power sector. NTPC and other power producers will get 13 million cubic meter of gas per day (mscmd) on firm basis and 12 mscmd on fallback basis.
Refineries, which were not in the priority list, will get 5 mscmd on firm basis and 6 mscmd on fallback basis. This will go to Reliance Industries Ltd. Fertilisers will get only 0.178 mscmd (against its demand of 20 mscmd) and steel will get only 0.44 mscmd. Fallback basis will be calculated only after RIL’s excess production rather than specified quantity of assured production.
In fact, in its previous policy, the fertiliser sector was the first priority for gas allocation and then came the steel and power sectors. There was no priority for refineries. But since new EGOM was appointed, power became the first priority and refineries are the second in priority. That is the reason why power sector is given bulk of new gas availability. US Jha, chairman of Rashtriya Chemicals & Fertilisers, told Moneylife that “as a fertiliser unit RCF expects gas allocation.” But he is not aware of the new allocation.
Fertiliser companies based on natural gas could be hit by a major crisis if they are not given natural gas, which is used as a fuel and raw material. Already eight fertiliser units in Barauni, Sindri, Haldia, Gorakhpur, Talchar, Ramagundam, Korba and Durgapur have shut down. On an average, about 950 to 1,000 cubic metres of gas are used for each tonne of fertiliser. Around 20% of natural gas is used as feedstock and 80% is used as a fuel. If gas is not made available to fertiliser companies, more units may face closure and that may in turn see sharp rise in fertiliser imports and subsidies. Fertiliser subsidies were around Rs 46,000 crore in 2007-08 and are likely to cross Rs 1,00,000 crore this year.
In addition to natural gas, fertilisers can be made from heavy oil and coal. Heavy oil and coal options are very expensive as compared to natural gas. Heavy oil conversion to fertiliser plant will mean 30% more energy and coal conversion to fertiliser plant will consume 70% more energy. Investment cost in heavy oil and coal plants are also very expensive. Heavy oil plant is 40% more expensive and coal-based plant is 140% more costly. Production cost is also very high, as compared to the cost of natural gas. Production cost of fertiliser through heavy oil is 20% more and for coal it is 70% more. So if natural gas is not made available to fertiliser plants, cost pressure on other options will create huge losses for the country.