Mumbai: The proposed fertilizer complex at Kakinada in Andhra Pradesh by Reliance Industries Ltd (RIL) may hit a roadblock, with the Union government set to prioritize the supply of critical feedstock to existing units.
The government’s gas utilization policy, to be announced in the next few days, will prioritize the use of natural gas, a key raw material for the fertilizer industry, for existing fertilizer and power plants.
Increasing imports: A tanker carrying natural gas. The gas utilization policy will prioritize the use of natural gas, a key raw material for the fertilizer industry, for existing fertilizer and power plants.
The Mukesh Ambani-led RIL made its proposal to the Union chemicals and fertilizers ministry last year to set up two fertilizer plants of 2 million tonnes (mt) capacity each, hoping to source natural gas from its oil and gas fields at the Krishna-Godavari (KG) basin, , according to an RIL executive who didn’t want to be identified.
“It is unlikely that a new fertilizer plant will be eligible to secure gas from the KG basin,” a senior official of the petroleum ministry said.
“The (gas utilization) policy prioritizes natural gas allocation to existing gas-based fertilizer plants, petrochemical and liquified petroleum gas (LPG) fractioners units, existing gas-based power plants and city gas projects, in that order.”
The official, who asked not to be named, said the group of ministers met last week to finalize the norms for the gas utilization policy and an announcement is due soon.
The gas utilization policy, expected to address the gap in demand and supply, was mooted by the Union government after a month-long discussion over the pricing of natural gas from the New Exploration Licensing Policy, including RIL’s field in the KG basin.
“Our proposal to enter the fertilizer sector was based on the economy we anticipate in producing fertilizers using cheap feedstock from the local field, and on the government’s proposed fertilizer investment policy,” another RIL executive said. “We are still awaiting the fertilizer investment policy to come out for finalizing our proposal.”
The government hopes to deregulate the sector with a new fertilizer investment policy, which will permit setting up privately owned plants that will not be bound by price controls.
The RIL executive, requesting anonymity, said it would take the company at least two-three years to set up a fertilizer plant. “By that time, we expect the demand-supply scenario will be under control, though we would procure the feedstock at market rates only,” he added.
“Reliance had approached the government with some pre-market conditions, including reforms in the existing subsidy mechanism by making it directly to the farmer, and less government interference in the final pricing,” said another person familiar with the development, who didn’t want to be identified.
Mint could not independently confirm this and an RIL spokesperson declined to comment.
RIL expects an initial output of 40 million standard cu.m per day (mscmd) from the KG basin, which will be commissioned by the third quarter of the current financial year. This output would have to be diverted to the priority sectors, as listed by the new gas utilization policy.
Fertilizer units in the country get 22mscmd of gas against their requirement of 76mscmd, forcing them to import feedstock at international prices.
Other sectors such as petrochemicals and power plants also face an acute shortage of gas. The petrochemicals sector, which needs 22mscmd, gets 8mscmd, and the power sector gets 32mscmd against its requirement of 126mscmd.
These three priority sectors, as per the new gas utilization policy, require a combined gas supply of 224mscmd. The current available gas supply in the country is 67mscmd.
The government is also planning to revive seven fertilizer plants, which are closed currently because of the gas shortage.
Public sector fertilizer units currently in operation are also looking for expansion as the government’s new agriculture policy recommends additional production. This will add to the demand for feedstock within the priority sector.
As a result, even if RIL doubles its output from the KG Basin to the projected 80mscmd by 2010, it would find it difficult to channel this gas for captive consumption, unless the demand-supply situation gets stabilized, said the same petroleum ministry official.
Udit Misra in New Delhi contributed to this story.