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No increase in price of urea for next four years: Is it good or bad news?. MCFL continues with urea production after Delhi High Court grants relief. GAIL presentation: Download copy. Ramagundam urea plant: EIL makes a frontal entry into the fertilizer sector, to get Rs 190 crore as EPCM consultant. Bulk of the increase of world demand for fertilizers expected to come from India and China: FAO. Environment ministry nod for Rs 150 crore de-bottlenecking project at Tata's Babrala plant. News Briefs. GAIL is merely a demand aggregator under the pooling system, says our columnist. Gas pooling mechanism: Fertilizer industry under represented in Empowered Pool Management Committee. New Urea policy-I: Energy norms tightened but only three years from now. New Urea policy-II: Other terms and conditions . NFL posts loss of Rs 101 crore in Q4. Spiraling debt in fertilizer units-I: Will KSFL's brownfield expansion bring about a negative rating?. Spiraling debt in fertilizer units-II: Slippages in timelines for fertiliser subsidy dispensation remain a key concern. Soil and fertilizer testing facilities need to be strengthened: Committee on Agriculture. MMTC floats tender for sale of ammonium sulphate. Tripura invites bids for supply of bio-fertilizers. News Briefs.

No increase in price of urea for next four years: Is it good or bad news?

May 29: The statement made by Hansraj Ahir, minister of state for chemical & Fertilizers on Thursday that the price of urea is not going to be increased for the next four years is evidently food for thought.
 
8This definitely rules out hopes of any incremental increase in prices, of the kind noticed for diesel, and the burden of feedstock and raw material price volatility will have to be borne by the finance ministry from the general exchequer. 
 
8Any increase in input price will straight away impact the subsidy bill and given that more capacities are coming up and most of it may have to be fed through high cost LNG, assuming that domestic gas production does not go up significantly, will raise the subsidy element proportionately.
 
8The government however may be banking on promises of a rise in indigenous gas production by RIL and ONGC by the time new fertilizer plants come into existence, obviating the need for banking on LNG.
 
8The authorities are now talking of self sufficiency in urea production riding on output that will come out of new units that will replace defunct public sector plants that belonged to FCI and HFC, and if all of this can be fired on indigenous gas priced at reasonable levels, then the subsidy bill is unlikely to balloon beyond a point.
 
8The talk that India can be a net exporter of urea is not entirely convincing because that would depend on the cost of gas in India in relation to its cost internationally. India is a hydrocarbon deficient country, and it is impossible for the government to contemplate the export of urea based on subsidised gas when there will be competing demand for such gas from other industries. The Prime Minister`s Made in India campaign will require the provisioning of reasonably priced gas for the manufacturing sector. In other words, there can`t be any diversion of domestic gas to the manufacture of urea for exports as long as its price in India is cheaper than LNG.
 
8In that sense, self sufficiency in urea production will be the goal and it will limit the expansion of capacity only up to this point.
 
8In any case, even though the gas pooling and urea policies have been announced, there is still a lot of uncertainty going ahead. And it will be some time before firm investment commitments come in from the private and cooperative sector.
 
8In this context, the minister of state`s statement -- goaded by political compulsions -- is likely to be seen as a deterrent rather than an encouragement by the industry as the burden of the subsidy bill will fall entirely on the government, and as everyone knows that the political master can be whimsical when it comes to dealing with the subject.
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MCFL continues with urea production after Delhi High Court grants relief

May 29: Mangalore Chemicals & Fertilizers Limited (MCFL), which is now a subsidiary of Zuari Fertilizers & Chemicals Ltd (ZFCL), has started production of urea from April 17, 2015, on the orders of the High Court of Delhi.
 8MCFL had to shut its urea plant due to expiry of government permission for production of farm nutrient from high cost feedstock naphtha.
 8The company had been estimating and accounting for concessions on urea as per the Modified New Pricing Scheme (NPS)-III which was notified on April 2, 2014. As per the notification, naphtha-based urea units were to continue under the NPS-III till gas availability and connectivity was provided or June 14, whichever was earlier, beyond which subsidy to these plants was not to be paid. However, later this arrangement was extended upto September 30, 2014.
 8Consequently production of urea at the unit was stopped from October 1, 2014.
 8Later, production was re-started from January 7, 2015, as per a government notification for an initial period of 100 days upto April 16, 2015.
 8The production however continued without any interruption even after the 100-day period after the High Court of Delhi granted relief to the company from April 17, 2015, onwards.
 Click here for more information
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GAIL presentation: Download copy

May 29: The website carries here, for reference purposes, a detailed presentation made by GAIL for business analysts. The presentation includes details on:
 8Gas pooling for the fertilizer sector
 8Scheme for utilization of gas-based power generation capacity
 8Company's long-term gas sourcing (imports) portfolio
 8Gas transported and gas marketed quantity (in last five years)
 8Gas sourcing and sector-wise supply (2014-15)
 8Major on-going and upcoming projects
 8Major financial highlights of FY 2015
 8Company's future plans
 8Company's balance sheet (as of March 31, 2015)
 Click here to access the presentation
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Ramagundam urea plant: EIL makes a frontal entry into the fertilizer sector, to get Rs 190 crore as EPCM consultant

May 28: For Engineers India Ltd (EIL) putting together the Rs 4,500 crore Ramagundam ferilizer project as a EPCM consultant is going to be both a challenge and an opportunity.
 
8This is the first time that EIL will handle an ammonia-urea project of this magnitude.
 
8It is rare for an engineering company to pick up a 26% stake in an urea-ammonia complex, particularly when it had little hands-on experience.
 
8In this context, EIL`s attempt is to make a frontal entry into the business, and then to consolidate further from here onwards.
 
8Goaded by a determined government, a rush of new plants are likely to spring up, and EIL might try to make a go for them as a consultant, even though some might find it a conflict of interest since EIL is already a shareholder in one.
 
8It is never easy to break into a sector as complicated as fertilizers and get into the big league, and EIL is now making the effort and the investment to get in at any cost. The consultant has so far survived almost entirely on orders given by public sector E&P and refining companies and while it has been trying for a long while to get into new sectors, it has not had any notable success so far.
 
8EIL has had some experience in building fertilizer plants but not of the scale and magnitude of the job at hand in Ramagundam. .
 
8It is learnt that the EIA report that was prepared by EIL for environmental clearance was an exact copy of a report submitted by one of the licensors.
 
8It remains to be seen how exactly will EIL and NFL go about implementing the project.
 
8Will the entire responsibility be passed on to an EPC contractor or will the project be divided up into smaller packages? The ammonia and urea plants, given their complexity and the near-monopoly of a handful of licensors, have to be given out as LSTK contracts whereas utilities and offsites can be make into separate packages.
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Bulk of the increase of world demand for fertilizers expected to come from India and China: FAO

May 28: The bulk of the increase of world demand for fertilizer is expected to come from India and China, according to United Nations report on world fertilizer trends and outlook.
8The Food and Agriculture Organization of the United Nations (FAO) in its report titled "World fertilizer trends and outlook to 2018" has pointed out that fertilizer consumption in South Asia -- which is the second largest fertilizer consuming region in the world -- has been increasing at a fast pace. The region`s share in world consumption of nitrogen, phosphate and potash is 19.8, 18.4 and 9.1%, respectively.
8Nitrogen, phosphate, potash consumption is expected to grow at 1.7, 3.6 and 4.9%, respectively, per annum upto 2018. This outlook may be strongly influenced by the evolution of the fertilizer subsidy regimes in India, says the report.
8Among the Asian countries, the bulk of the increase of world demand for nitrogen (for the 2014-2018 period) is expected to come from China (18%) and India (17%), followed by Indonesia (6%), Pakistan (4%). As far as the growth in world demand of phosphate is concerned, about 27% of demand is expected in India, 10% in China, 5% in Indonesia, 3% in Pakistan and 2% in Bangladesh.
8Then again, about 23% of the growth in world demand for potash is expected in China, 17% in India, 7% in Indonesia, 2% in Malaysia and 1% for the remainder from the rest of Asia.
Click here to access the FAO report
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Environment ministry nod for Rs 150 crore de-bottlenecking project at Tata's Babrala plant

May 28: The environment ministry (MOEF) has given its nod for the de-bottlenecking project at the Tata`s fertilizer plant at Babrala (Uttar Pradesh).
8The cost of the project has been pegged at Rs 150 crore.
8Over and above this, another Rs 80 lakh has been earmarked by the MOEF for recurring cost/annum to put in place proper environmental pollution control measures.
Click on Reports for more
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News Briefs

May 28: 8Kharif crop sown in around 15% more area this time: The total sown area of Kharif crop (as on May 22, 2015) stood at 56.22 lakh hectare as compared to 49.04 lakh hectare at this time last year (2014). The sown area coverage of crops is 14.62% higher in comparison to the previous kharif season.
--It is reported that rice has been sown/transplanted in 2.68 lakh ha, sugarcane in 40.70 lakh hectare and cotton in 6.12 lakh ha.
--The crop-wise area covered so far and that covered during this time last year is carried in details.
8DOF wants farmers to use SSP in place of DAP: The Department of Fertilizers (DOF) has requested all the states to bring awareness among farmers to use Single Super Phosphate (SSP) in place of DAP in view of its various nutrient contents, lower price and indigenous production.
--The DOF is of the view that SSP provides seven micro nutrients, besides P, sulphur and calcium, and is able to address wide variety of requirement of different micronutrients in different crops and soils.
--It also pointed out that being produced indigenously, SSP is available throughout the country at a price almost one-third of DAP, which is mostly imported.
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GAIL is merely a demand aggregator under the pooling system, says our columnist

May 27: Our columnist M.K. Malik believes that there is no real reason why GAIL or the petroleum ministry should control the pool accounts when all the work is being done by the FICC. GAIL has been brought into the picture to aggregate the demand and negotiate the right LNG price. Malik was asked by the website about his views on the gas pooling notification and following are the excerpts:
 What do you think of the notification?
 They seem to be roughly operating the pooling on the input subsidy mechanism that I proposed in my column - except that they are doing it on a total amount basis instead of on a per MT basis. In all probability, they will end up computing the total amount by deriving the per MT and multiplying by the subsidized fertilizer quantity. This will happen, especially if they find some reason to ask units to export urea to Nepal or wherever due to drought in the country or some such thing.
 
Is the pooling system just demand aggregation by GAIL?
 
It seems to me to be aimed only at pooling together demand and having GAIL negotiate the prices. The entire rigmarole is required only for this. Otherwise, there is no need for any role for GAIL or for that matter for the Petroleum Ministry at all. Since all the data is being given by the FICC; FICC is taking on the onus of paying up if the Unit defaults and recovering from the subsidy bills of the units etc., it can very well calculate the average price and the Pool Fund recovery/payment, itself, and maintain the Pool Fund Account. Why go to GAIL or the Petroleum Ministry at all?
 Then what is the need for GAIL in all this?
 This thing about GAIL pooling together additional requirement and buying medium term/Spot LNG is the only thing that validates their presence in this Pooling business.

 Is there a need for GAIL to control the pool accounts?
 
There is no reason why GAIL cannot pool demand and negotiate for LNG only and that is if the fertilizer industry really feels that it is the best agency for it, without also controlling the pool accounts. Both are independent activities. After all, because FAI was negotiating the Phos Acid prices for all units, it did not need to control the subsidy calculations and payments for NPK/DAP.

Gas pooling mechanism: Fertilizer industry under represented in Empowered Pool Management Committee

May 27: For reference purposes, the website carries here the the gas pooling notification that has been brought out by the petroleum ministry.
 
8
GAIL has been given the responsibility to aggregate demand and negotiate LNG prices. Since demand is being aggregated over the short term, the negotiations for LNG will also be over a similar term, which does not necessarily translate into the best possible price that the fertilizer industry can get for LNG. Given that domestic gas supply is unlikely to go up quickly, GAIL can easily negotiate gas over a longer time frame to elicit better prices given that the fertilizer industry is a captive consumer guaranteed to offtrake gas.
 
8
A government committee has been set up to supervise the transactions and it is over represented by the petroleum ministry.
 
8
Then again, there should have been an industry representative too, perhaps from the FAI or one of the big cooperatives or a fertilizer sector equivalent of GAIL, in the committee. That would have balance the decision making process.
 
8The mechanism that has been put in place is geared to ensure payment safety for GAIL. The gas major will also be able to palm off LNG that it finds non-remunerative to sell in the open market.
 Click on our reports section to download the notification.

New Urea policy-I: Energy norms tightened but only three years from now

May 27: The DOF has come out with a new urea policy that seeks to tighten energy consumption norms by 2018-19, that is by the time the Modi government thinks that the new government mentored state of art urea units will come into existence.
 
8
In order for older units to be able to compete with these supposedly highly efficient units, the tighter energy consumption norms are sought to be imposed three years down the line.
 The New Urea Policy-2015, will be effective for a period of four years starting from June 1, 2015, upto March 31, 2019. For the first three years, that is, 2015-16 (from June 1, 2015), 2016-17 and 2017-18, the revised energy norms would be the simple average of the pre-set energy norms of NPS-III and the average actual energy consumption achieved during 2011-12, 2012-13 and 2013-14 or the pre-set energy norms of NPS-III, whichever is lower.
 
8
The energy norms for the fourth year (2018-19) would depend on the group under which the unit falls. The energy consumption norm for Group-I (except for TCL-Babrala) for 2018-19 would be 5.5 G Cal/MT. For TCL-Babrala, the existing pre-set energy consumption norm of NPS-III, that is, 5.417 G Cal/MT will continue.
 
8
The energy consumption norms for Group-II and III units for 2018-19 will be 6.2 G Cal/MT and 6.5 G Cal/MT, respectively.
 For this purpose, the urea units have been classified into the following three groups:
 
8
Group-I: This group includes the urea units which have pre-set energy norms between 5.0 G Cal/MT to 6.0 G Cal/MT. The 13 units which come under this group are: NFL, Vijaipur-I and II, Kribhco-Hazira, Indo-Gulf-Jagdishpur, IFFCO-Aonla-I and II, KSFL-Shahjahanpur, CFCL Gadepan-I and II, TCL-Babrala, NFCL-Kakinada-I and II and IFFCO Phulpur-II.
 
8
Group-II: The units which have pre-set energy norms between 6.0 G Cal/MT and 7.0 G Cal/MT come under this category. The four units which fall under this category are: IFFCO-Kalol, GSFC-Baroda, RCF-Thal and GNVFC-Bharuch.
 
8
Group-III: This group includes the urea units which have pre-set energy norms of more than 7.0 G Cal/MT. The eight units which come under this group are: NFL-Nangal, NFL-Panipat, ZACL-Goa, SFC-Kota, RCF-Trombay-V, IFFCO-Phulpur-I and KCFL-Kanpur.
 Click on our Reports section for more
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New Urea policy-II: Other terms and conditions

May 27: The gas-based urea manufacturing units which are not connected to a gas pipeline network will not be covered under the new Urea Policy, 2015. In other words, the units which are not connected to a gas pipeline network will not get gas at the pooled price.
 
8
The units which will not get the benefit of concessional rate of gas are: MFL-Manali, MCFL-Mangalore, SPIC Tuticorin and BVFCL-Namrup-II and III.
 
8
As the BVFCL`s Namrup-II and III units are proposed to be closed to install a new high efficiency unit, these two units will be dealt separately under the restructuring proposal.
 
8
Till then, the Namrup units will function in line with the provisions of the modified NPS-III.
 Then again, as per the new policy, the present provisions for conversion of FO/LSHS urea units to natural gas issued by the DOF will continue for NFL's urea units at Bathinda, Nangal and Panipat and GNVFC's Bharuch unit.
 
8
The units which have already converted from naphtha to gas (such as ZACL and KFCL) will continue to get savings on energy consumption over the pre-set norms of NPS-III to recover their investment on conversion.
 
8
The data from each such unit will be obtained, and based on it, the DOF in consultation with the DOE, will work out the period for which the existing norms will be allowed, which will not be more than five years from the date of conversion so that each unit is in a position to recover the investment, with interest thereon, from energy savings.
 
8
The compensation for other variables such as the cost of bag, water and electricity charges and the fixed cost will be determined in accordance with the existing provisions of NPS-III and the Modified NPS-III.
 
8
For production beyond the Re-Assessment Capacity (RAC), the units will be entitled for their respective variable cost and a uniform per MT incentive equal to the lowest of the per MT fixed costs of all the indigenous urea units subject to the import parity price plus the weighted average of other incidental charges which the government incurs on the imported urea.
 
8
All other existing policy guidelines relating to escalation and de-escalation of concession rate, neem-coated urea, distribution and movement, import of urea and taxes on input for urea production and freight disbursement will however continue.  
 Click on our Reports section for more
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NFL posts loss of Rs 101 crore in Q4

May 27: National Fertilizers Limited (NFL) has reported a loss of Rs 100.57 crore in the fourth quarter (Q4) ended March 31, due to fall in sales.
8Net sales during Q4 (January-March quarter) dipped to Rs 1,554.97 crore from Rs 1,973.25 crore in the same quarter previous year.
8Though NFL reported a loss of Rs Rs 100.57 crore in Q4, for the full fiscal, the company reported a net profit of Rs 26.24 crore. In 2013-14 fiscal, it has posted a net loss of Rs 89.71 crore.
8NFL has five gas-based urea plants viz Nangal and Bathinda in Punjab, Panipat in Haryana and two plants at Vijaipur in District Guna, Madhya Pradesh.
8The company has a total annual installed capacity of 35.68 lakh tonnes and is the second largest producer of urea in the country.
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May 26: Spiraling debt in fertilizer units-I: Will KSFL's brownfield expansion bring about a negative rating?
May 26: Spiraling debt in fertilizer units-II: Slippages in timelines for fertiliser subsidy dispensation remain a key concern   Details
May 26: Soil and fertilizer testing facilities need to be strengthened: Committee on Agriculture   Details
May 26: MMTC floats tender for sale of ammonium sulphate   Details
May 26: Tripura invites bids for supply of bio-fertilizers   Details
May 26: News Briefs   Details
 
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