
Dr S Nand,Director (Technical),Fertiliser Association of India
Both fertiliser and power sector are looked upon as
anchor consumer in the country by policymakers whenever there are plans for
setting-up an LNG terminal and laying new pipelines. Having said that a lot of
hue and cry is made over subsidies and protection extended to both the sectors.
The reality is that as far as agriculture sector is concerned subsidies and
special consideration of government exist world over and therefore India is no
exception.
Indian farmers in their effort to increase food
grain production depend heavily on fertiliser to enhance and enrich soil
quality. For fertilizer sector – gas is a major input for producing urea. The
demand for urea is all set to increase from current 32 million tonnes per year
to 36 million tonnes in 2016-17. Against this projected demand for urea our
domestic production of urea currently stands at 22 million tonnes. And best of
the estimates prove that by 2016-17 domestic production would only increase to
24 million tonnes. Now, this leaves a huge gap between our demand for urea and
the domestic production for the same. This results in country being heavily
dependent on imports, thereby resulting in huge import bill.
As of now 23 percent of our urea production is based
on gas. At present, urea in the country is selling at an MRP of Rs 5,310 per
tonne. The production cost for producing 1 kg of urea turns out to be US$6/MMBtu.
Even this price is inadequate to recover the production cost. As part of the
Government’s gas allocation policy for priority sector, fertiliser sector is
entitled to get 45 MMSCMD of gas at subsidised price. With conservative
estimates of LNG prices hovering at US$10 – production of urea is going to
become unviable.
The hard reality is that to ensure food security of
the country, farmers’ needs have to be met by the Government through continuous
and long-term assistance. Fertiliser sector is and will continue to require
subsidies to meet the growing need for fertiliser. The moot question to be
debated is should the assistance extended to the sector be in the form of input
subsidies, minimum support price or through direct cash transfer.

Amulya Charan,Managing Director,Tata Power Trading Company Limited
As per the figures made public by the Power
Ministry, the total installed power capacity in the country stands at 182.3 GW.
Of this, the gas installed capacity stands at 17.7 GW. Going forward another 100
GW is planned to be added in the XII Plan. And in order to sustain just 10
percent share of gas to produce power in the XII Plan an additional 45 MMSCMD of
gas would be required.
The real question that needs to be asked is that
whether the power sector has to really compete with other sectors such as
fertiliser and CGD for a scarce resource such as gas. Today, power plants based
on imported coal producing power at Rs four / unit are struggling to get off the
ground. Thus, with no significant increase in domestic gas production, R-LNG can
be instrumental in meeting gas demands for the power sector. The cost of
producing power based on domestic coal stands at Rs 2-3/kWh against a cost of Rs
3.5-4 based on imported coal and gas. The fact of the life is that there is no
way in which distribution companies can recover high cost of peaking power as
the power is being consumed by domestic users. With firm take or pay gas
contracts – power generators would find themselves in trouble as they do not
have firm contract with generators. Also, when we talk about gas or R-LNG for
power generation we have to put up against odds including lack of gas storage
facilities.
For R-LNG to substitute domestic gas – power tariff
in the county needs to be revised. R-LNG can be absorbed by power sector at a
price level of US$ 6 to 7 given that we have consumers who are ready to pay Rs 5
for the peaking and uninterrupted supply power.

Deepak Mahurkar,Associate Director - Energy, Utilities & Mining: Oil and Gas,PwC
Clearly power and fertilizer sector as of
today cannot digest R-LNG for the peculiar problems that both these
sectors face. But other sectors are not saddled with similar problems
and therefore they can very happily take higher prices. Typically other
sectors that can absorb R-LNG at market prices are Petrochemicals,
Pharma, Ceramic, Glass, Captive co-generation and Sponge-iron.
Typical constraints that fertilizer and
power industry per se face make for a genuine cause why they cannot
afford R-LNG. And the reason for non-affordability of R-LNG for both
power and fertilizer sector are different. Although they show the same
behavior on gas pricing but the reasons for the same are quite
different. One commonality between the two is that the netbacks are poor
from these sectors. This means that when I consider a particular price
of sale of that product and if I assume reasonable profitability for
other entities involved in various value chain i.e. the entry point of
the fertilizer project or the power generation the gas net back price
works out to be substantially lower than what R-LNG sector can currently
manage to supply. And that’s where the affordability to offtake R-LNG is
poor. The only way to bring in the affordability to absorb R-LNG is to
simply raise the prices of the products of the power and fertilizer
sector. Again it is at this very point that the two sectors start
behaving differently. In power sector raising the prices is a political
issue. Political realities are pushing the power prices down. We are not
able to increase the tariffs and somebody has to bear the cost in the
value chain which is where fertilizer sector is different from power.
The net back prices are low in fertilizer sector given low MRP of major
product - urea. The government absorbs the subsidy for fertilizer
sector. If we go by the fiscal situation of the Government there does
not seem to be any affordability for central exchequer to roll out more
money for even urea subsidy. It is highly unlikely that the selling
price of the urea is going to be increased and therefore nobody is going
to pick the price. In such a situation R-LNG cannot be afforded by
either fertiliser or power sector.