India fertiliser ministry opposes proposal to stop D6 gas supply to fertiliser companies

The fertiliser ministry of has opposed the oil ministry's proposal to stop supplying cheap natural gas from Reliance Industries-operated D6 block to manufacturers of phosphorous (P) and potassium (K) fertilisers and has demanded immediate allocation of 24.2 million standard cubic meters per day (mmscmd) to a dozen fertiliser units.

Fertiliser firms have said that if domestic gas is not supplied to P&K plants, they would be forced to import liquefied natural (LNG) gas from spot market at $18/unit, making their projects unviable, government officials familiar with the development said. The D6 gas is sold at $4.2/unit, and the oil ministry wants it to be supplied only to urea units.

An official in the fertiliser ministry said that the move would adversely affect Deepak Fertiliser, Rashtriya Chemicals & Fertilisers (RCF) and Gujarat State Fertilisers & Chemicals (GSFC). ET first reported on Dec 23 about the government's proposal to cut D6 gas supplies of some fertiliser units to optimally use the scarce resource.

Officials said the oil ministry's proposal to overhaul priority customers was currently under inter-ministerial examination. A final decision on this matter will be taken by an empowered group of ministers (EGoM). The meeting of the panel, chaired by finance minister Pranab Mukherjee, is not yet scheduled. EGoM decisions do not require ratification by the cabinet.

The oil ministry wants to supply cheap domestic gas to only those units that make urea. "With the nutrient-based subsidy scheme operating, P&K fertiliser plants do not deserve allocation of cheap gas," one official said. "In case of urea, the subsidy is uncapped and cheaper input gas leads to lower subsidy burden on the government," the official added.

The fertiliser ministry has, however, suggested that the government should supply domestic gas supplied to all fertiliser plants while the fertiliser ministry would ensure that cheap gas is not be used by fertiliser firms for profiteering, officials said.

The fertiliser ministry has also sought fresh allocation of 24.2 mmscmd cheap gas produced from D6 or other domestic sources for seven expension projects, two greenfield plants and revival of at least two urea units of Fertiliser Corporation of India (FCIL) and Hindustan Fertiliser Corp (HFCL), officials in the fertiliser ministry said.

"This firm allocation of gas required from 2015-16 onwards will facilitate financial closure of the projects and will make the country self sufficient in urea," one official said.