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Oman move could up fertilizer subsidy bill

Oman move could up fertilizer subsidy bill
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First Published: Wed, Nov 09 2011. 07 40 PM IST

Photo: Bloomberg
Photo: Bloomberg
Updated: Wed, Nov 09 2011. 07 40 PM IST
New Delhi: Oman wants to increase the price at which it sells gas to Oman India Fertiliser Co. SAOC (Omifco) by four times, a demand that could inflate India’s urea subsidy bill by a few hundred crores of rupees.
Photo: Bloomberg
Omifco ships nearly all of the urea it manufactures to India under an agreement the country has with the Oman government.
Oman in a letter to the government of India in June said it wants to renegotiate its 2005 contract with India and increase the price of its gas from $0.77 (around Rs38) per million British thermal unit (mBtu) to $3 per mBtu, two government officials said, asking not to be identified.
Under the contract, the rates were fixed for 15 years.
Mint has not reviewed a copy of the letter.
Indian Farmers Fertilizer Cooperative Ltd (Iffco) and Krishak Bharati Cooperative Ltd own 25% each in Omifco. Oman government-owned Oman Oil Co. SAOC owns the rest.
U.S. Awasthi, managing director of Iffco, confirmed the development. Officials in the Omani embassy in Delhi could not be immediately reached for comment on account of Eid holidays.
Oman’s request comes at a time when India is struggling to negotiate the price of gas with the government of Ghana for a urea-manufacturing unit that government-owned Rashtriya Chemicals and Fertilizers Ltd wants to set up in the West African nation.
Omifco produces 1.5 million tonnes (mt) of urea every year.
The freight on-board price of urea supplied by Omifco is $150 a tonne, against the prevailing international open market price of $475-500 a tonne. The Omifco facility went on steam in May 2005.
Increasing the price of gas to $3 per mBtu will translate into a $60 per tonne rise in the price of urea imported under this arrangement, one of the government officials said. “It would also mean that the subsidy bill would go up by about Rs450 crore.”
India currently pays out a fertilizer subsidy of Rs80,000 crore.
The second government official said the Indian government has not taken a decision on Oman’s request. “We have asked the foreign and finance ministries for their comments on the matter, but neither has so far come back to us. We will take a final call only once these ministries revert.”
Arvind Mahajan, head of energy and natural resources and global infrastructure practice at audit and consulting firm KPMG, said some natural resource suppliers such as Oman and Indonesia believe some contracts were negotiated cheap and now want to renegotiate.
“When these contracts were signed, it was good for them as it generated employment for them and gave them much-needed technical know-how,” he said. “But over time, there has been a feeling in these countries that the family silver has been given away cheap, and so they must renegotiate and generate more revenue from such contracts.”
Indonesia in August reworked its coal policy by benchmarking the price of coal to international indices, a move that hit power projects of Tata Power Co. Ltd and Reliance Power Ltd.
aman.m@livemint.com
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First Published: Wed, Nov 09 2011. 07 40 PM IST