Assessment of Gas Allocation to Fertilizer Sector

1. A total of 58 million tons (MT) of fertilizer products were consumed in 2010-11. 2. Consumption of urea alone was more than 28 MT. Balance 30 MT product were phosphatic and potassic fertilizers. 3. Production of urea in 2010-11 was about 22 MT. About 4 MT urea was produced using imported liquefied natural gas (LNG). Of the 22 MT production only 14 MT was based on domestic gas. Another 4 MT urea was produced using naphtha and fuel oil as feedstock. The balance requirement of urea of more than 6 MT was imported. 4. Only 1 MT of phosphate fertilizers were produced using domestic rock phosphate. 5. Thus, for 39 MT of fertilizer products out of a total consumption of 58 MT, the country is dependent on imports of either raw materials or finished products. It means there is real self sufficiency of only 33 percent for this vital input for agriculture. 6. International prices of urea are higher than domestic cost of production of urea. 7. India is the second largest consumer of fertilizers in the world. It's import demand pushes up the international prices. 8. There are cartels of phosphate and potash fertilizer suppliers. Prices are high and availability is a problem. 9. No import of muriate of potash (MoP) was done in 2010-11 due to deadlock with international cartel. 10. Urea is the only product that India can produce and increase self-sufficiency, if gas is available. Present self-sufficiency is only 64 percent. 11. According to the latest data available, there is a shortfall of 2.25 million metric standard cubic meters per day (MMSCMD) due to reduction in supply of gas from Reliance Industries Ltd. (RIL), Panna - Mukta - Tapti (PMT) and re-gasified liquefied natural gas (RLNG). 12. RIL gas shortfall was more than 1 MMSCMD to fertilizer units. These units were commissioned in 1980s and early 1990s and were allocated their full requirement of gas from Oil and Natural Gas Corporation Ltd. (ONGC) at that time 13. Fertilizer security is pre-requisite to food security. 14. Prices of fertilizers sold to the farmers have bearing on consumption and hence agriculture production. 15. Government of India (GoI) is keeping maximum retail prices (MRP) at reasonable level and hence provides subsidy from public exchequer. 16. Any increase in input cost increases the cost of production and the subsidy estimated to be more than INR 60,000 crore for 2011-12. 17. A shortfall in supply of 1.5 MMSCMD (10 percent) of RIL gas, if substituted with RLNG, will increase the fertilizer subsidy by INR 800 crore. 18. There is need for additional allocation to make up in shortfall in supply of administered price mechanism (APM) gas and to substitute RLNG. 19. A number of plants are completing revamp project and will increase capacity by almost 1 MT urea in the current year. These plants need to be allocated additional gas. Investment is of the order of INR 3,000 crore. 20. About 0.5 MMSCMD of gas is allocated but could not be contracted by Indian Farmers Fertilizer Cooperative Ltd. (IFFCO) Phulpur and Indo Gulf Fertilizers due to pipeline constraint. This also needs to be contracted now. 21. Under a policy directive fuel oil based units are changing to gas with combines investment of more than INR 5,000 crore. Completion will be in 2012-13. Gas requirements of these plants is 3.8 MMSCMD. 22. In view of unique status of fertilizer sector, GoI has always been giving first priority in allocation of gas including gas from ONGC, PMT and now from RIL There are good economic and technical reasons for this priority. Various expert groups from time to time reaffirmed the first priority of fertilizer sector. 23. Empowered group of ministers (EGoM) had allocated gas to fertilizer sector to meet the "full requirement of gas based urea plants" without any quantitative restriction. 24. This in effect means that there should not be any reduction in supply of gas to fertilizer plants unless the production of RIL gas falls below the quantity allocated to the fertilizer sector. 25. The Supreme Court has ruled that government owns the gas till it reached the ultimate consumer. Therefore, government is well within its right to formulate the gas utilization policy. Thus, the legal position is well settled and Ministry of Petroleum and Natural Gas and gas producers have to honour the first priority given to fertilizer sector in allocation of RIL gas.