Chidambaram puts his foot down on pricing of gas-I: Insists on a gas price cap

Dec 10:

Finance minister P. Chidambaram has put its foot down by insisting that there should be a cap on natural gas prices produced in India. His suggestion was overruled by the petroleum ministry but his ministry has now hit back, in its comments on a cabinet note on the subject, claiming that there is indeed a requirement for such a cap.
8The finance ministry said that a ceiling on the gas price is necessary to protect the interests of government and consumers in case of an unreasonable upswing in gas prices. In fact, the ministry had argued that the previous price of US$ 4.2/mmBTU was subject to a cap (cap would come In force once the crude price exceeded US$ 60/bbl), and therefore, there is no ambiguity as to whether the price ceiling is permissible under the PSC. As similar provisions related to pricing mechanism are there in the Model-PSC for latest rounds of NELP bidding, it follows
that the ceiling can easily be applied in respect of all such contracts.
North Block made the following points while reiterating its position:

Chidambaram puts his foot down on pricing of gas-II: Wants spot LNG prices excluded from Rangarajan formula

Dec 10:

P. Chidamabram has also nixed the petroleum ministry's proposal to include spot LNG prices -- which are usually much higher than term LNG prices -- in the new pricing formula for gas.
8The finance ministry said that the proposal to include spot contracts while computing PIAV and PJAV does not appear reasonable. Nowhere in the world, has well head prices of natural gas been linked to spot LNG contract prices, which are highly volatile and tend to be on the higher side. As such, spot prices should be excluded and only long term contracts from the same supplier should be considered. The weightage of quantity should be only with reference to the quantum supplied to India by that supplier. The trailing 12 months prices could be considered. To determine the net back well head prices, the standard transportation charges need to be reduced, North Block claimed.
8The ministry went on the argue that since it is difficult to establish linkages with other traded liquid fuels, the appropriate methodology would be to consider the trailing 12 months price of LNG imported into India against long term contracts from suppliers in the neighboring region such as Qatar, Abu Dhabi and Malaysia; and to assign weightage to all the prices based on the quantum imported into India from the said contracts.

mbaram puts his foot down on pricing of gas-III: Seeks clarification on bank guarantee from RIL

Dec 10:

The finance minister has also insisted that the revised gas price should not be applicable to gas production from D1 and D3 discoveries of  D-6 block till the shortfall quantity of gas, as on 31.03.2014, is made good or till the process of pending arbitration and attendant legal processes are concluded In favour of the contractor with regard to causes for decline in production.

FAI pitches for fertilizers security road-map to meet food security obligations

Dec 10: Fertiliser Association of India (FAI) has called for preparation of road-map for fertilizer security, which is a pre-requisite for meeting the statutory food security obligations under the recently enacted food security law.
 8As put by FAI in a background note issued to the Press, “given the importance of the sector in the context of food security of the country and subsidy bill exceeding
 Rs.1 lakh crore, there is need for a road map on policy front for the sector. If the uncertainty in the sector continues, even the present production capacity is endangered which will affect supply of fertilisers in near future.”
 8Pointing out that heavy subsidization of urea has adversely affected the NPK nutrients use ratio and farm yields, the Note says: “there is a need for introspection and correction in the fertiliser pricing and subsidy policies.”
 8It observes that fertilisers have played a stellar role in enhancing agricultural production and productivity. It is estimated that about 50% of additional foodgrain production in India has come through use of fertilisers. Historically, fertilizer pricing and subsidy policies have been instrumental in propagating and popularizing fertiliser use by Indian farmers.
 8The backgrounder acknowledges the fact that fertiliser pricing and subsidy policies have also exerted pressure on the government finances. Fertiliser subsidy with estimated requirement of rupees one lakh crore for the current year, is one of the major contributors to India’s fiscal deficit.
 8It says: “Lack of consistency in implementation of policies have resulted in stagnant capacity and rising imports. India is dependent entirely on imports for potassic fertilisers and in the case of phosphate we are dependent on imports to the extent of 95% either in the form of raw materials, intermediates or finished fertilisers. In the case of urea, we could have become 100% self reliant with the support of pragmatic investment & pricing policies with adequate allocation of domestic gas on priority. But, in absence of conducive policies, we are currently importing more than 25% of our annual requirement of 30 million tonnes urea.”
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FAI urges Govt to meet subsidy shortfall of Rs 41,000 crore

Dec 10: The Fertiliser Association of India (FAI) has urged the Government to provide an additional Rs.41000 crore during the current session of Parliament to meet the subsidy requirement for 2013-14 and thus save the industry from grave liquidity crisis.
 8FAI has reckoned the subsidy for current fiscal at about Rs.1,07,000 crore, inclusive of carryover of about Rs.32,000 crore from 2012-13. The supplementary grants should thus be made taking into consideration the total requirement of funds up to March, 2014 including the amount released as bridge loan by banks, it suggests.
 8Admitting that the prospects for complete wipe-out of subsidy deficit were remote, FAI Director General Satish Chander told reporters fertilizer companies would be forced to close down their operations if no money is given to them.
 8Mr. Chander quipped: “We are already on the ventilator. We are in ICU.” FAI Chairman R.G. Rajan and other senior industry representatives also enlightened reporters on different issues faced by the industry.
 8According to a background note issued at the customary Press Conference preceding FAI’s annual seminar, the total estimated requirement comprises Rs.50,000 crore on account of domestic urea including the unpaid subsidy bill of the previous year of about Rs.1700 crore. The subsidy requirement for imported urea is estimated at Rs.12,000 crore in view of the declining international prices.
 8The subsidy requirement for decontrolled P & K fertilisers is estimated at Rs.43,579 crore including backlog of previous year of about Rs.15,000 crore. In addition, the Government needs to compensate the industry against the residual, estimated loss of Rs 1912 crore on sale of Fertiliser Bonds.
 8The budgeted subsidy allocation of Rs.65,971.53 crore comprises Rs.21,000 crore for domestic urea, Rs.15544.64 crore for imported urea, Rs.29,426.86 crore for decontrolled fertilizers and a nominal amount of Rs.0.03 crore for compensation against loss on sale of fertilizer bonds.
 8FAI points out that the allocated subsidy for indigenous urea got exhausted with the ‘on account’ payment for May 2013. The allocation for P and K fertilizers would suffice the payment of subsidy bills up to August 2013.
 8It observes: “Already, there are large amounts pending for payment against balance (residual) subsidy on urea and P and K fertilisers and also on account of freight. Holding ‘on account’ payment will deal a severe blow to the industry, which is trying to somehow manage its cash flow to continue production, import and supply of fertilisers.”
 8Banking arrangement for Rs.5,500 crore sanctioned could not be released before November, 2013, as the same is in the nature of bridge loan from the banks against subsidy receivables which has a limit of 60 days. Department of Fertilizers (DOF) did not expect additional funds to be released before end of December, 2013 i.e., through supplementary grants during winter session of Parliament.
 8This banking arrangement of Rs.5,500 crore barely enabled the Government to make ‘on account’ payment for urea subsidy for the month of June and July, 2013. From August, 2013, the ‘on account’ payment for urea is also held up.
 8The Finance Ministry is yet to approve additional amount of about Rs.10,000 crore requested by the DOF through banking arrangement.
 8FAI has pointed out that funds sanctioned through banking channels are in the nature of temporary arrangement. This amount has to be repaid by DOF to the banks out of additional budget allocations through supplementary grants.
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DOF claims fertilizer manufacturing is not facing funds crunch

Dec 9: The Department of Fertilizers (DOF) has adopted an ostrich-like stance on the issue of serious liquidity crunch faced by the fertilizer sector.
 8One is bound to arrive at this conclusion after reading the terse reply to question raised in Rajya Sabha on 6th December.
 8Asked “whether fertilizer industry is facing shortage of funds leading to shortfall in production, if so, the details thereof,” the Minister of State for Chemicals and Fertilisers Srikant Kumar Jena answered: “No, Sir. There has not been any shortfall in production of fertilizers due to shortage of funds.”
 8He also stated that a group of ministers (GOM) is considering formulating a policy that would succeed the New Pricing Scheme (NPS) Stage-III for Urea Units.
 8Mr. Jena pointed out that the policy for stage III of New Pricing Scheme (NPS-III) was approved by CCEA in February 2007 and made effective from 1.10.2006 till 31.03.2010. The provisions of Policy for Stage-III of NPS have been extended beyond the validity period of NPS- III i.e. 31.3.2010 till further orders.
 8He added:” With the approval of PMO, a new GoM was constituted to look into all aspects relating to formulation of policy for the existing urea units beyond Stage-III of NPS, the meeting of which took place on 5th June, 2013. During the meeting, it was decided that further deliberations on the issues are required before formulation of policy for existing urea units beyond New Pricing Scheme. Thus beyond stage-III of NPS is under consideration of GOM, at present.”
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Talcher fertilizer JVs would retain public sector profile for all times

Dec 9: The two public sector joint ventures being formed for promoting Rs 9000-crore brownfield Talcher fertilizer project in Odisha would retain their public sector profile forever.
 8This has been disclosed by The Minister of State for Chemicals and Fertilisers Srikant Kumar Jena in reply to a question in Rajya Sabha. He stated: “The combined stake of PSUs shall remain above 51% at all times.”
 8Rashtriya Chemicals and Fertilisers Limited, GAIL (India) Limited, Coal India Limited (CIL) and Fertilizer Corporation of India Limited (FCIL) would among form two Joint Venture(JV) Companies JV-1 and JV-2.
 8Mr. Jena said: “JV-1 will be primarily responsible for setting up the Upstream Coal Gasification and Gas Purification section on Lump sum turnkey (LSTK) basis after pre-qualifying technology supplier. GAIL will have majority stakes in JV-1 and will be the nodal agency for implementation.”
 8He added: “JV-2 would be responsible for setting up Ammonia-Urea, Nitric Acid-Ammonium Nitrate plants. Majority stake shall be held by RCF & CIL. RCF will be nodal agency for implementation of the downstream plants and off sites & utilities. Pre-project activities have been undertaken, so as, to facilitate preparation of Detailed Feasibility Report (DFR).”
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Indian potash market again becoming lively: Uralkali

Dec 6:  8Russia’s Uralkali is sensing revival of the vigour in the Indian potash market following upturn in imports.
 8In its latest investor presentation, Uralkali says: “In India, imports of potash soared in October, returning to a trend which has prevailed in recent months. Exporters continue to be active in shipments to India in spite of the relatively challenging import environment. Expected 2013 potash imports are estimated at 3.2-3.5 Mn t.”
 8Noting that potash prices became more affordable for lower income farmers in India and other markets, it exudes: “Lower potash prices are expected to induce potash consumption: 2014 estimated market size to be in the range 59-60Mt driven by pickup in China, India, Brazil, US and South East Asia.”
 8The company reiterates its strategy. It says: “Uralkali is targeting maximizing revenue over the next 24 months with particular focus on such fast-growing markets as Latin America, South East Asia, China and India which have historically accounted for c. 60% of the Company’s total sales. Utilization rates are improving with Uralkali selling c.1Mt per month.”
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MOEF caps ammonia capacity for KSFL?s urea expansion project

Dec 5: 8The Ministry of Environment and Forests (MOEF) has stipulated that the ammonia storage capacity at urea expansion project of Kribhco Shyam Fertilizers Limited (KSFL) should not exceed 5000 tonnes.
 8MOEF has mentioned this as one of the terms of reference (TOR) for undertaking environment impact assessment (EIA) studies on the proposed expansion project at its gas-based fertilizer plant at Shahjahanpur in Uttar Pradesh.
 8According to TOR approval letter dated 22 November 2013, EIA report should contain an action plan for zero discharge of effluent.
 8Apart from stipulating several other environmental terms in the letter, MOEF has asked the company to incorporate in EIA report “a note on the long term strategy for the gas availability. Alternative, if the gas is not available.”
 8The letter says: “A note on the viability of the project in absence of non availability of gas.”
 8KSFL has proposed the Rs 4132-crore project for setting up of a 2200 tonnes per day (tpd) ammonia plant and a 3850 tpd urea plant.
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ABNL believes that its exit from import fertilizers marketing is beneficial

Dec 5: 8Aditya Birla Nuvo Limited (ABNL) believes that its decision to stop the marketing imported fertilizers covered under nutrient-based subsidy (NBS) scheme is benefitting it.
 8This is obvious from the statements made by a senior company official at a recent conference call with investment analysts.
 8The transcript of the conference call quoted ABNL’s official as stating “In the agri business, exit from trading of imported fertilizer has rationalized working capital employed. Though this has lowered profitability at EBITDA levels, but savings in interest cost will more than compensate on a full year basis.”
 8Answering a question, the official affirmed: “the trading of imported fertilisers, which was seasonally higher in second half, used to have an impact on margins and that was one issue which we addressed by discontinuing the same.”
 8He foresaw “some kind of an increase in subsidy level which might push up the working capital levels. These would be met sufficiently out of the promoter infusion and cash flow from operations.”
 8In August 2013, ABNL had disclosed that it has stopped marketing of imported, decontrolled fertilizers covered under nutrient-based subsidy (NBS) scheme.
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CPCB clears the technical deck for pilot launch of emissions trading

Dec 3: 8Central Pollution Control Board (CPCB) has unveiled the technical norms for trading of emissions, thereby bringing fertilizers and several other industries closer to a new phase of pollution control.
 8The norms are incorporated in CPCB’s comprehensive report captioned ‘Continuous Emissions Monitoring Systems and Pilot Emissions Trading Scheme (ETS) for Particulate Matter from Stationary Sources (Stack) in India (Market Friendly Emissions Trading Scheme)’
 8The Report says: “Emission trading using particulate matter as marker pollutant from industrial point sources has been taken up first time in the country. The activity involves use of Continuous Emissions Monitoring Systems (CEMS) for real time assessment of emission concentration vis-à-vis emission load. This initiation would help to gather real time information on pollution load from the stationary sources, which in turn put all the stake holders including regulators on step forward to plan regulatory reforms and keep vigil and ensure the implementation of the regulation more transparently and effectively.”
 8It adds: “The Ministry of Environment and Forests (MOEF) has initiated an important project to design and evaluate a pilot emissions trading scheme (ETS) for particulate matter from stationary sources, being launched in three states: Gujarat, Maharashtra and Tamil Nadu wherein the Central Pollution Control Board is working as Nodal Agency for overall implementation of the program.”
 8In August 2010, MOEF had issued a discussion paper/concept note titled ‘Towards an Emissions Trading Scheme for Air Pollutants in India’.
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FACT lines a slew of new projects under its medium-term plan

Dec 2: 8Fertilisers and Chemicals Travancore Limited (FACT) has formulated a slew of project proposals under its medium-term plan for growth.
 8One project envisages ramp-up of phosphoric acid capacity at Cochin division from 360 tonnes per day (TPD) to 500 TPD at a cost of Rs 145 crore to reduce the dependence on imported acid. FACT’s FEDO division has already prepared a detailed project report on this proposal after factoring in a technical study report provided by the original process licensor in October 2012.
 8Another major project provides for setting up of a 2000 TPD sulphuric acid plant at Cochin division. This project will not only help the company reduce dependency on external sulphuric acid but will also offer an opportunity to optimize cost by power generation from the waste steam which is generated from the sulphuric acid plant. The estimated cost of this project is Rs 330 crore.
 8The plan also provides for setting up of a up a 1000 TPD nitrophosphate plant at Cochin division with investment of Rs 200 crore, according to FACT’s annual report for 2012-13.
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