Rangarajan pricing formula-I: Gas price for April-June 2013 quarter pegged at $6.775/MMBTU

May 21: Computation of gas price for the quarter April-June 2013 using the Rangarajan Committee recommended formula pegs the price of gas at $6.775/MMBTU.
 8The gas price is obtained by a simple average of the weighted average netback price (P_IAV) for Indian imports and the weighted average of prices (P_WAV) prevailing at international hubs in US, UK and Japan.
 Computation of P_IAV
 8The weighted average netback price for Indian imports is obtained by averaging the netback imported prices of gas imported by Petronet LNG Ltd (PLL), GAIL and Gujarat State Petroleum Corp (GSPC) with appropriate weights over the last one year.
 8Over 80% of the gas imported into India was imported by PLL, most of which was sourced from Qatar, based on long term sourcing contracts. Hence, prices paid by PLL had the highest weightage while calculating the average imported netback price. PLL sourced gas at prices well below prices of gas sourced by GAIL and GSPC, which were mostly sourced from the spot market.
 8Netback price of gas sourced by PLL varied from a low of about $5.8/MMBTU to a high of $7.6/MMBTU over the year 2012.
 8Netback prices of gas sourced by GAIL and GSPC were higher, around $7/MMBTU to $11/MMBTU.
 8The weighted average netback prices of gas sourced by the three companies in the year 2012 increased consistently throughout the year. The weighted average price over the four quarters of the year per MMBTU were $6.33, $6.52, $6.84 and $7.34 respectively.
 8The P_IAV calculated based on data obtained by the three companies is $6.77/MMBTU.
 Computation of P_WAV
 8The world weighted average netback prices is calculated based on the prices and quantity of gas traded at the hubs or balancing points of major global markets. The major global hubs at US (Henry Hub), UK (NBP) and Japan were recommended by the Rangarajan committee for calculating world average netback price to producers.
 8The quantity of gas traded at Henry Hub and NBP were around 215 BCM and 275 BCM per quarter respectively. The quantity of gas traded in Japan was relatively smaller, around 30 BCM per quarter. Hence, while calculating world netback prices, US and UK gas prices have a much higher weightage in the calculation compared to Japan.
 8Over the last one year, there was a huge difference in the cost of gas traded at the various global hubs. While Henry hub prices were trading between $2.5-$3.5/MMBTU, the corresponding price at NBP (UK) varied from $8.5 to $10.8 per MMBTU. The prices prevailing in Japan were higher still over the last year, ranging from $11 to $13.5 per MMBTU.
 8Global gas prices were rising consistently over the last year. The weighted average global prices for the four quarters of the year 2012 were $6.43, $6.37, $6.68 and $7.64 respectively.
 8The P_WAV calculated from the data gives us a weighted average gas price of $6.78/MMBTU.
 8The simple average of P_IAV and P_WAV is calculated to determine the price for domestic gas according to the Rangarajan committee recommended formula. Hence, the price of gas based on the formula is calculated at $6.775/MMBTU.   Details

Rangarajan pricing formula-II: No one knows which way the wind will blow

May 21: The Cabinet Committee on Economic Affairs will face a hard time taking a decision on a single gas price because there are several of them now floating around.
 8Various arms of the government are yet to agree on a common methodology for calculating the price for domestic gas. While most of them agree with the fundamental concept for calculating gas prices as recommended by the Rangarajan committee, some of them would like to tinker with the formula.
 8Which of the formulas is the better one? That`s more a question of political and economic exigency than of economic logic.
 8Eventually, the CCEA is a political body and it is behind the scene politics that will decide which way the dice rolls.
 8Would the power, fertilizer lobbies carry the day? Will North Block`s views have precedence? Or would the Rangarajan Committee`s formula be sacrosant? These are questions only time will answer.
 8Given the Prime Minister`s penchant for wriggling out of tight situations, it is also possible that the entire issue will be referred to the Empowered Group of Ministers for a view.   Details

Rangarajan pricing formula-III: Details of full impact of new gas pricing on the fertilizer sector

May 21: The department of fertilizers (DOF) has said in its comments on the Rangarajan Committee recommended gas pricing formula, that an increase in the price of gas will have a huge financial impact on the fertilizer sector.
 8The DOF said that currently 21 gas based urea units consume almost 25 MMBTU of gas per MT of urea produced.
 8Increase of USD 1/MMBTU in the price of gas translates to enhanced cost of urea production by $24.89 per MT. For 18 MMT urea production per annum, the enhanced cost in $448 million per annum, i.e. Rs. 2465 crore per annum ( Rs 55 per USD)
 8Additional 5 MMT urea capacity is being converted from Naptha/FO/LSHS to gas during 2013-14. This will result in additional cost of Rs 690 crore per annum in 2013-14.
 8Overall impact of USD 1/MMBTU increase in gas price will be Rs 3155 crore per annum from 2013-14 onwards for 23 MMT of urea production.
 8New investment policy 2012 encourages 9 MMT additional urea capacity by end of 12th plan (2016-17). Every one USD/MMBTU increase in price of gas will enhance subsidy by USD 20 per MT, i.e. $180 million per annum ( Rs 990 crore per annum at Rs 55 per USD)
 8Overall impact of USD 1/MMBTU increase in gas price will therefore be Rs 4144 crore per annum for 32 MMT urea production from 2017-18 onwards.   Details

Rangarajan pricing formula-IV: Power sector to be hit most

May 21: There are 18000 MW of commissioned gas based power plants in India. 30% of this capacity is stranded for want of gas.
 8Around 1000 MW of gas based power plants at advanced stage of commissioning/construction are stranded for want of gas.
 8With the existing gas based capacity generating at 70% PLF, about 1,10,376 million units are generated per annum. A $1 increase in the gas price, assuming that the delivered price increases by $1.3/MMBTU, the impact on the power sector will be about Rs 6450 crores.
 8The base price of domestic gas at $8.8/MMBTU (Delivered price of $12/MMBTU) would mean that the total impact on existing gas based stations due to increase in base gas price from $4.2/MMBTU to $8.8/MMBTU (assuming increase in delivered gas price of about $6/MMBTU) is about Rs 29,800 crores per annum.
 8The variable cost would be around Rs 5.40/Kwhr (45 paise per MMBTU) taking the total cost of generation to around Rs 6.40/unit, which will be unviable.
 8Considering the capacity presently under construction, the total gas base capacity will be about 28,000 MW, generating about 1,71,696 MU/annum at 70% PLF. The impact of every dollar increase in the price of gas would be about Rs 10,400 crores per annum.
 8Thus, the impact on total gas based capacity on increase in base price from $4.2/MMBTU to $8.8/MMBTU will be about Rs 46,360 crores per annum. Hence, base price of gas beyond $5/MMBTU is unviable for the power sector under the prevailing retail rates for power.   Details

CIL set to get maiden phosphoric acid delivery from its Tunisian JV

May 21: Coromandel International Limited (CIL) is expecting shortly maiden delivery of phosphoric acid from its tripartite phosphoric acid joint venture, Tunisian Indian Fertilizers (TIFERT). The JV recently commissioned its 330,000 tonne/year of phosphoric acid in Tunisia.
 8At a recent conference call with investment analysts, CIL Managing Director Kapil Mehan said: “Our TIFERT plant also has been under commissioning for the last 30-35 days and we are happy to now report that phosphoric acid has started coming out. It is still not at full capacity but phosphoric acid has been produced and we are expecting that by second half of May, we will have some dispatch taking place. A shipment is expected to sail from there in second half of May.”
 8As reported earlier, CIL has invested $ 29 million to acquire 15% equity stake in TIFERT with a view to securing phosphoric acid supply for its Indian complex fertilizer plants. Gujarat State Fertiliser Chemicals (GSFC) Limited holds another 15% equity stake in the JV. The balance 70% shares are owned by Tunisia’s Groupe Chimque Tunisien (GCT) and its associate Compagnie des Phosphates de Gafsa (CPG).
 8Explaining the reasons for slump in CIL’s Q4 profit, Mehan stated: “Our financial performance was also impacted by some very high cost that we had to absorb for ammonia. Ammonia’s high cost factor was a challenge even during the last quarter and that challenge continued, only towards the end of the quarter the prices of ammonia have softened a little bit.”
 Visit our reports section to access the transcript of the conference call.

Petronet LNG eyes green nod for its Rs 5650-cr Dahej expansion project

May 21: With gas pricing-related setback to gas production persisting, Petronet LNG Limited (PLL) is bracing to secure environmental nod for its ambitious Rs 5650-crore project to double the capacity of liquefied natural gas (LNG) terminal at Dahej in Gujarat to 20 million tonnes per year (mtpa).
 8In its environment impact assessment report unveiled for forthcoming public hearing, the company says: “The power and fertilizer sectors are expected to consume more than 80% of the total natural gas consumed in the country. Apart from power and fertilizer, the other prominent demand segments include industries like steel and CGD.”
 8It continues: “Although the availability of gas has expanded, its demand has continuously been outstripping supply. Currently, the Indian gas market has a shortfall of approximately 45 MMSCMD. However, there is a large latent demand that is unserved. Sectors like power could require as much as 100 MMSCMD additionally during the 12th plan period.”
 8This expansion project would be completed in two phases by 2020. Petronet expects its total operating LNG capacity at three sites in the country would reach 25 mtpa by 2016.
 Visit our reports section for the details.

ABNL to complete Jagdishpur urea expansion in 3 years

May 20: 8Aditya Birla Nuvo Limited (ABNL) intends to complete its 3850 tonnes/day brownfield urea expansion project at Jagdishpur in Uttar Pradesh within three years after receipt of all requisite approvals.
 8In its information memorandum on its Rs 200-crore debt issue, ABNL says: “Major regulatory approvals are in place viz., Environmental, Pollution Control, Water Supply etc. Final approval for setting up of the proposed urea plant is awaited from Department Of Fertilisers. Approval for allocation of natural gas is also awaited from Ministry of Petroleum & Natural Gas. Project completion period is about 3 years at a capex of Rs. 4,000 Crore.”
 8Indo-Gulf has expanded its product portfolio to cover the full range of N, P, K fertilisers by offering 'Birla Shaktiman DAP, NPK and SSP'. These products were well received by the farmers and the channel partners, it adds.
 Visit our reports section to access ABNL’s debt offer document.

Global consultancy firms vie for DOF’s NBS impact study

May 20: 8A few global consultancy giants are among the nine bidders in the race to bag Department of Fertilizers’ (DOF’s) contract to undertake a comprehensive study on the impact of nutrient-based subsidy (NBS) scheme and suggest measures to improve the scheme.
 8The big names competing for the assignment include: PricewaterhouseCoopers, Boston Consulting Group (India), Deloitte & Touch Consulting India, Accenture Services, Ernst & Young and Crisil.
 8DOF has invited all the nine bidders to make their respective presentation on the proposed study on 27th May. It intends to give weightage to the presentation in the technical evaluation of the bids.
 Visit our reports section for the details

MMTC seeks offers for supply of tech-grade urea

May 20: 8MMTC Limited has invited bids for delivery of 1860 tonnes of technical-grade prilled urea required for industrial usage latest by June 2013.
 8Of the required quantity, 1700 tonnes is to be supplied at Nhava Sheva and the balance 160 tonnes at Chennai.
 Visit our reports section to access the tender document.

DAP & MOP marketers yet to come out of the woods

May 19: 8The fertilizers companies, especially the ones marketing diammonium phosphate (DAP) and muriate of potash (MOP) are “facing very uncertain market conditions and liquidity tightness due to delayed subsidy payments.”
 8Sharing the industry’s concerns with investment analysts at a conference call held on 8th May, DCM Shriram Consolidated Limited (DSCL) Chairman and Senior Managing Director Ajay Shriram said: “We are carrying out these activities in a restricted manner.”
 8He added: “There is enough stock of DAP, MOP in the country for the Kharif season. Now depending on the monsoon, we will take a view for the Rabi season.” Answering a question, a senior executive from DSCL said: “the industry certainly has a lot of stock of NPK. Some estimates are that between the trade and the godowns of companies just the NPKs could be as high as about 2 million tonnes.” As regards urea, DSCL has been operating its urea plant at its Kota complex at full capacity post the maintenance shutdown in Q3 FY13.
 8The transcript of the conference call quoted Mr. Shriram as stating: “We are still awaiting the finalization of the new urea pricing policy, which is already delayed by over three years. This delay continues to result in higher uncompensated cost increases, which along with higher subsidy outstanding is impacting the performance of this business.”
 8Replying to a question, he quipped: “As of now, in terms of CAPEX, we are not looking at spending any major money in either fertilizer business or PVC business.”
 Visit our reports section to access the transcript of the conference call.

GNFC boosts q4 fertilizers profit by 61.56%

May 19: 8Gujarat Narmada Valley Fertilizers and Chemicals (GNFC) has boosted the profit before interest and tax (PBIT) of its fertilizers business by 61.56% to Rs 61.83 crore in the fourth quarter (January-March 2013) of 2012-13 from Rs 38.27 crore in the corresponding period of the preceding year.
 8The big jump in profitability occurred in spite of 15.31% decrease in fertilizers sales to Rs 586.69 crore from Rs 692.80 crore. In the footnotes to the results table, the company did not disclose any reason for this performance.
 8GNFC’s net profit declined to Rs 67.26 crore from Rs 75.15 crore.
 8As for the annual results, the company also witness a decrease in its net profit to Rs 273.11 crore from Rs 283.84 crore.
 Visit our reports section to view the results table.

GSFC’s fertilizer business suffers 15% decline in its Q4 profit

May 16: Gujarat State Fertilizers & Chemicals’ (GSFC’s) fertilizer business has suffered decline in its profit before interest and tax (PBIT) to Rs 103.35 crore in the fourth quarter (January-March 2013) of 2012-13 from Rs 121.63 crore in the corresponding period of the preceding year.
 8The downslide occurred in spite of increase in fertilizer sales to Rs 1200.25 crore from Rs 1016.66 crore. The company did not give any specific reason for decline in fertilizer business’ profitability.
 8In the footnotes to the results, GSFC, however, stated: “employees cost for the quarter ending on 31st March 2013 is higher mainly due to provisioning of the liability of wage revision consequent upon reaching an understanding with the Employees Union at Polymer and fibre units.”
 8The company’s explanation for decline in net profit due to increase in total expenditure is apparently applicable to both fertilizers and chemicals businesses.
 Visit our reports section to view the results table.