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Gas price imbroglio-I: Urea units willing to open LCs at higher gas price only after it is notified by the government

April 23: For reference purposes, the website carries here the discussions held between RIL and fertilizer units over the signing of fresh GSPAs for the period from April 1, 2014 onwards, as also discussions held by the Fertilizer Secretary in which representatives from RIL, the fertilizer industry, the petroleum ministry and the Department of Fertilizers were present.
 
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It now transpires that RIL has demanded letters of credit from fertilizer units calculated at an assumed price of $8.3 per mmbtu on GHV basis, but the fertilizer industry insisted that the LCs would be at an applicable rate of $4.2 per mmbtu.
 
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The value will, however, be amended when the new prices are defined.
 
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RIL also insisted on the payment of a marketing margin at $0.135 per mmbtu on NHV basis and $0.122 per mmbtu on GHV basis.
 
8The fertilizer industry was willing to go along with the proposal but subject to such a margin being notified by the government.
 
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Gas price imbroglio-II: RIL continues to insist on security for gas price differential

April 23: Differences have cropped up between RIL and the fertilizer industry over what transpired in the meeting held by the fertilizer secretary to resolve the imbroglio over signing of fresh GSPAs from April 1, 2014.
 
The following is the RIL version of what transpired:
 
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RIL denied that it had agreed to a gas price of $4.2.
 
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The gas price of $4.2 was valid only upto March 31, 2014 and the government had come out with a notification listing out a new gas price formula. Under the circumstances clearly, therefore, the revised gas prices are applicable from April 1, 2014.
 
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There is a requirement for providing security against the differential gas price.
 
8Gas will be supplied from April 1, 2014 only as per the term sheet supplied by RIL.
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Gas price imbroglio-III: Urea units fear disruption in gas supply

April 23: The fertilizer industry is always quick to hit the "alert" button whenever their interests are at stake.
 
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Even though the petroleum ministry has issued a written direction to the DGH that the price of gas would remain at $4.2/mmbtu and that GSPAs will have signed only at this price, the urea industry has fired off a letter to the Department of Fertilizers (DOF), claiming that a lot of "uncertainty" is brewing over supply of gas after RIL's insistence on the furnishing of letters of credit for the amount equal to the differential gas price.
 
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The urea industry fears that there will be a disruption in gas supply.
 
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"Any disruption in gas supply will severely impact the coming Kharif season," the industry has proclaimed.
 
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Apparently, requests from the industry for a meeting to sort out the problem had met with stony silence from RIL's side. The company however denies the allegation.
 
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Reacting to the letter, the DOF has shot off a missive to the petroleum ministry seeking assurance that gas supply will not be discontinued by RIL even though the company had never said explicitly held out the threat of discontinuation of supply in any of their communications with the urea units.
 
8The petroleum ministry in turn is now readying a letter to the DOF, assuring that the gas price will remain at $4.2/mmbtu and new prices, whenever they become applicable, will be notified in advance.
 
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Gas price imbroglio-IV: Everyone up in arms against RIL

April 23: It is not just the fertilizer industry that is crying hoarse over the terms of the new GSPA with RIL.
 
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The power industry is also up in arms.
 
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The petroleum ministry has been inundated by letters from gas suppliers, the Association of Power Producers of India, and other assorted users of gas, whose GSPAs with RIL are expiring on March 31, 2014.
 
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No D-6 gas is supplied to any non-fertilizer user but all of them are keen on extending their GSPAs on the fond hope that once gas production goes up from the field, some gas may find its way to them.
 
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The usual complaint of all the petitoners is that RIL is refusing to sign up unless the company has its way in terms of letters of credit for the differential price of gas as and when supplied.
 
8There are objections too to others terms in the draft GSPA drawn up by RIL, which the buyers claim are "completely one sided".
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DFPCL unveils open offer for MCFL shares; takeover battle likely

April 23: Deepak Fertilisers and Petrochemicals Corporation Limited (DFPCL) today announced an open offer for acquisition of equity stake of up to 26% in Mangalore Chemicals and Fertilisers Limited (MCFL).
8The open offer has been made by DFPCL’s wholly owned subsidiary, SCM Soilfert Ltd (SSL), with DFPCL acting as ‘persons in concert (PAC)’ in the takeover move. In mid-2013, SSL had acquired 24.46% stake in MCFL.
8The open offer obligation was triggered following DFPCL’s purchase order today for 1.7% shares, which would increase the combined DFPCL-SSL stake to 26.1% from the present 24.5%.
8The offer to buy 30,813,939 equity shares of face value of Rs 10 each at price of Rs 61.75/share means DFPCL-SSL would have to invest Rs 190.27 crore for the proposed transactions.
8It remains to be seen whether DFPCL offer would transform into battle for management control of MCFL. It might turn out to be a triangular contest with existing promoters UB group (52.8% stake) and Zuari Fertilizes and Chemicals that currently holds 16.43% stake. It also remains to be seen whether UB and Zuari groups would strike a deal to frustrate DFPCL offer. The prospects of an understanding between DFPCL and Zuari cannot also be ruled out, according to an analyst.
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MMTC invite tenders for supply of 80,000 tonnes of DAP/MAP

April 23: MMTC has invited tenders for supply of 80,000 tonnes of mono-ammonium-phosphate/diammonium phosphate during 2nd half of May to 2nd half of June 2014.
8The company has asked for an firm offer for delivery of 40,000 tonnes of granular MAP or granular DAP in two parcels of 20,000 tonnes each. It has also solicited a firm offer for supply of 20,000 tonnes of powder MAP.
8The company is also seeking bids for supply of an additional 20,000 tonnes of granular MAP or granular DAP at MMTC’s option.
  Details

Mosaic projects 2% increase in DAP purchases by Indian growers in 2014-15

April 22: Mosaic Company of the U.S has projected 2% increase in diammonium phosphate (DAP) purchase by Indian farmers in 2014-15.
8In a recent presentation on Phosphate Outlook, the company has pointed out that this estimate is based on the assumption that monsoon rains would be good and farm economics would continue to be profitable.
8The presentation says: “Even if channel inventories are drawn down another 550,000 tonnes and production increases to 3.7 million tonnes, producer/importer sales to retailers would need to increase 33% to 9.20 million tonnes and imports would need to increase 55% to 5.35 million tonnes in order to meet projected demand.”
8It adds: “These projections no doubt will change due to several factors such as the level of phosphoric acid prices, the quality of the monsoon, etc., but it looks likely that India’s appetite for DAP imports will increase significantly in 2014/15 with a potential rebound of ~2.0 million tonnes.”
8As put by the company, “Our Delhi team estimates that DAP use by farmers remained strong in 2013/14 due to an outstanding monsoon, record acreage and profitable farm economics. The government raised minimum support prices for major crops, retail urea prices stayed stable at the extremely low level of $80-$85 per tonne, and retail P&K prices, while up sharply from pre-reform levels, declined modestly in 2013/14.”
8As a result, retail dealer sales to farmers are projected to total 9.4 million tonnes during 2013-14. Producer and importer sales to retailer dealers, however, are projected to drop to 6.9 million tonnes, implying a retail inventory decline of 2.5 million tonnes. Producer/importer inventories are projected to increase slightly in 2013-14.
8It has projected Indian DAP imports at about 10 million tonnes by 2020.
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Mosaic gives fresh insight into Indian fertilizer market developments

April 22: Mosaic Company of the U.S. has given a comprehensive picture of the fertilizer situation in India in its latest country-specific market report titled ‘India NPK Statistical Update’.
8Apart from subsidy rates analysis, import prices and shipments, the Update also carries data on other aspects of urea, DAP, MAP, MOP and NPK fertilizers.
8It also shed light on fertilizer contract prices and rupee-dollar exchange rate. We have thus placed the Update in the reports section for ready reference.
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Gas price revision-I: RIL explains why it has demanded security from buyers for the gas price differential amount

April 21: Reliance Industries Ltd (RIL) had demanded what it termed as "appropriate security" from buyers of gas to the extent of the gas price differential between the current price of $4.2/mmbtu and the price applicable for the quarter bginning April 1, 2014 as per the Rangarajan Committee formula.
 
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The company has argued that it was not correct on the part of the Election Commission to put off the gas price increase and it will become imperative for the government to back charge consumers from April 1, once the electoral process is over.
 
8RIL said that it has asked customers to provide guarantees through letters of credit for the differential amount.

 
8"You will agree that this is only a fair condition that protests the interest of the Contractor and the Government, - without prejudicing the interests of the customers/buyers and that will prevent any uncertainly arising from the circumstances resulting from the specious decision of Election Commission," RIL said in a letter to the ministry.
  Details

Gas price revision-III: Ministry cites pricing notification to claim new price can only be notified retrospectively

April 21: The petroleum ministry has got a different stand on the gas price increase from that of RIL
 
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The ministry is of the view that the model code of conduct, the Election Commission of India had deferred the announcement of revised prices as per Domestic Natural Gas Pricing Guidelines, 2014.
 
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As per para 1.8 of these guidelines, it is a pre-requisite that the revised prices are notified in advance every quarter. The price is calculated for each quarter and made applicable from the beginning of ensuing quarter.
 
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Without such notification, the guidelines cannot come into force, the ministry is arguing.
 
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This position is as per decision of CCEA, the ministry has claimed.
 
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In effect what the ministry is trying to argue is that the price will be effective for the quarter for which the revised price is notified in advance every quarter.
 
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This implies that the price will have to be on prospective basis and not implemented retrospectively.
 
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RIL on the other hand had tried to argue that "with the notification of the The Domestic Gas Pricing Guidelines, 2014', the government accorded the approval contemplated by Article 21.6.3 of the PSC" but this is being contested by the ministry.
 
8The ministry has now come with the following clarification:
 "This is in continuation to the Ministry's order dated 28th march, 2014 regarding the revision of gas prices for domestically produced gas as per Natural Gas pricing Guidelines for domestically produced gas notified on 10.01.2014. It is further clarified to ONGC, OIL and all the contractors under NELP that para 1.5 to 1.9 of the pricing guidelines are deferred till the model code of conduct is lifted and government announces the revised prices. NELP contractors shall charge US$4.2/mmbtu till such time. In respect of Dl and D3 gas discoveries of Block KG-DWN-98/3 the revised prices shall be further subject to para 1.10 of Domestic Natural Gas Pricing guidelines 2014."
 Comment: The petroleum ministry will get a new political boss once a government assumes power. All decisions on gas pricing and its timing will be taken by the new government. The current position of the government will change accordingly.
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Gas price revision-II: Fertilizer industry has formed a cartel, says RIL

April 21: RIL has claimed that it is being subjected to a Rs 300 crore exposure for the 15-day period up to April 15, 2014 the unwillingness of buyers to provide the necessary letters of credit for the differential price of gas.
 
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The exposure is increasing every day.
 
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RIL has claimed that the fertilizer industry has began working as a cartel to stymie efforts to get them around to cover the exposure through a letter of credit.
 
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The fact that the industry is working in concert is evident from the fact that buyers in other sectors with allocation of D-6 gas have agreed to the sign the amended GSPA incorporating payment security for the price differential.
 
8The new GSPAs have been signed for 17 mmscmd of gas allocated to these buyers.
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FAO report estimates substantial rise in GHG emissions from fert usage

April 21: The Food and Agriculture Organization (FAO) has projected significant increase in greenhouse gases (GHG) emissions from application of fertilizers to crops.
 8In a report captioned ‘Agriculture, Forestry and Other Land Use Emissions by Sources and Removals by Sinks 1990 – 2011 Analysis’ released earlier this month, FAO notes: “With respect to the 2000s average levels, global emissions from synthetic fertilisers are projected to increase in 2030 and 2050 by 32% and by 48%, respectively, reaching nearly 900 Mt CO2 eq (equivalent) in 2050.”
 8It adds: “Agricultural GHG emissions from all sources are increasing, with some faster than others. For example, for the period 2001-2011 emissions from synthetic fertilizer application are growing much faster (3.5%) than the other categories. Indeed, synthetic fertilizers may become the second largest emission source after enteric fermentation over the next decade, if increases continue at present rates. On the contrary, deforestation emissions are declining.”
 8According to the report, emissions from synthetic fertilizers consist of direct and indirect N2O emissions from nitrogen added to agricultural soils by farmers. Specifically, N2O is produced by microbial processes of nitrification and de-nitrification taking place on the addition site (direct emissions), and after volatilization/re-deposition and leaching processes (indirect emissions).
 8Greenhouse gas emissions from agriculture consist of non-CO2 gases, specifically methane, CH4, and nitrous oxide, N2O, produced from biological activities linked to bacterial decomposition processes in cropland and grassland soils and in livestock’s digestive systems.
 8Emissions include processes linked to enteric fermentation, manure management, rice cultivation, synthetic fertilizers, manure left on pasture, manure applied to soils, cultivation of organic soils, crop residues decay, prescribed burning of savannahs and field burning of crop residues.
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April 21: IFFCO selects KBR & Stamicarbon technologies for its Canadian fert project   Details
April 18: Gas price increase: The government did a lot of footwork over it   Details
April 18: FACT seeks offers for supply of ammonia   Details
April 18: FACT seeks bids for mega sale of phospho-gypsum   Details
April 17: Global phosphatic fertilizer prices are high for Indian market: Agrium   Details
April 16: New gas price: Should it be based on Gross Calorific Value or Net Calorific Value?   Details
 
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