Gas price hike likely to burden urea companies by Rs 9,000 crore

The hike in domestic gas price, which is expected to be implemented from April 1, 2014, may burden urea producing companies by over Rs 9,000 crore.

According to a report submitted by Parliamentary Standing Committee on Finance headed by Yashwant Sinha, the production cost would increase by Rs 1,384 per tonne with every increase of $1 per Million British Thermal Unit (MMBTU) in gas prices.

Most of the country's natural gas is currently sold at $4.20 per unit. The price of gas in April next year would be around $8.42 and over $10 in the following year.

The Rangarajan-gas pricing formula would be applicable for five years. It uses long-term and spot liquid gas (LNG) import contracts as well as international trading benchmarks to arrive at a competitive price for India.

The Yashwant Sinha panel said according to the information they received from the Department of Fertilisers, if gas price increases by $1/MMBTU, then per tonne increase in production cost of urea will be Rs 1,369.5 and the total production of urea by gas-based fertiliser companies is pegged at 18 million tonne.

"On an average, in India around 24.893 MMBTU of natural gas is required to produce one MT urea. Increasing gas price by $1/MMBTU translates into enhanced cost of almost Rs 2,465.1 crore for 18 MMT of urea produce by gas based units per annum," the committee said.

"It is thus evident that gas pricing has serious repercussions for the economy as a whole, which warrants careful deliberations and prudent decisions," it observed.

According to arithmetic, the resultant burden would be Rs 9,060 crore as with the Union Cabinet's decision, the gas price would be almost $4 more than existing prices.