Rangarajan Committee Report-I: Petroleum ministry sticks to the Committee's formula

May 21: The petroleum ministry`s final note to the Cabinet Committee on Economic Affairs (CCEA) on a new gas price based on the Rangarajan Committee Report is now ready. The inter-ministerial consultations are over and while some ministries have suggested their own pricing formulas, the petroleum ministry sticking to the Rangarajan Committee`s suggestions in letter and spirit. The note is now headed to the Cabinet Secretariat for placement before the cabinet.
 The following conditionalities will apply
 8The price will be applicable to all gas produced domestically, irrespective of the source, whether conventional, shale, CBM etc.
 8The new price will not be applicable where prices have been fixed contractually for certain period of time.
 8These prices shall also not be applicable where the contract provides a definite formula for natural gas price indexation / fixation.
 8Further, it is clarified that the proposed pricing formula would only apply prospectively and is not proposed for application to gas prices already approved.
 8The prices determined under these guidelines shall be applicable to all consuming sectors uniformly.
 8These guidelines are also applicable to natural gas produced by ONGC/OIL from their nominated fields.   Details

Rangarajan Committee Report-II: Details of assumptions made to arrive at netback FOB price

May 21:  The petroleum ministry has taken the average of the weighted netback price of all Indian imports at the wellhead of the exporting countries and the average of prices prevailing at trading points of transactions to arrive at the price of gas in India.
 8The net back FOB price is to be calculated based on daily spot LNG vessel chartering rates and accompanied and accompanying shipping related costs. These additional costs include:
 --Daily spot LNG vessel chartering rates for east and west of Suez voyages based on 138,000 - 155,000 cu m standard size vessel.
 a daily boil off rate of 0.15 % / day based on 98 % vessel capacity utilization rate
 --An average 50 pc of fuel consumption based on daily bunker consumption of 150 t based on local rates
 --An average of 50 pc of LNG fuel consumption based on the boil-off rate.
 --Voyage timing based on a laden leg speed of 19.5 knots.
 8It is proposed to adopt Netback FOB prices reported in standard industry sources like Platts, Argus etc.
 8The average price of liquefaction costs for the older plants is of the order of $ 2.5/mmbtu. For plants which started deliveries in 2010 or after, the liquefaction cost is of the order of $ 3.5 to 4.0/mmbtu. A recent contract signed by GAIL with the Sabine Pass facility in United States of America for supplies to commence in the year 2016 from a brownfield project envisages liquefaction cost of around $ 3.0/mmbtu. Hence, it is recommended that an average of $ 2.5/mmbtu may be adopted as the liquefaction cost for older plants, and $ 3.5/mmbtu for exports from plants starting deliveries after 2010. These figures may be reviewed after five years.
 8The trend of liquefaction costs can be ascertained from the data available from the reports of Facts Global LNG and Wood Mackenzie.
 8Where it is not possible by any means (through customs or through industry sources etc.) to ascertain whether a particular shipment is from pre-2010 or post 2010 LPG Train, an average of $ 3.0/mmbtu may be assumed as the liquefaction cost.
 8The transportation cost from the well-head to the liquefaction plant may be considered as around $ 0.5/mmbtu. This includes handling charges and sweetening costs of gas   Details

Rangarajan Committee Report-III: Details of the second leg of the pricing formula

May 21:  For the average of prices prevailing at international trading points of transactions -- the second leg of the pricing equation -- the following parameters are taken into account:
 8PWAV = (A1 PHH+A2*PNBP+ A3*PJAV)/(A1+A2+A3), where PWAV= Weighted average price to producers in the global markets, and A1 = Total volume consumed in North America at average Henry Hub prices on yearly basis i.e. 12 months or four quarters with a lag of one quarter. PHH = Annual average of daily prices on Henry Hub for the relevant year arrived from the four quarters with a lag of one quarter. A2 = Volume consumed in EU and FSU in the relevant year i.e. 12 months or four quarters with a lag of one quarter. PNBP = Annual average of daily prices on National Balancing Point (NBP) in the UK for the relevant year arrived from the four quarters with a lag of one quarter. (NBP is a good proxy for the prices in .Europe as this is the oldest and most liquid exchange in Europe). A3 = Volume imported by Japan in the relevant year or four quarters with a lag of one quarter. PJAV= Yearly weighted average producers netback price of gas in Japan for the relevant year (weighted by the total volume of long term and spot imports) or four quarters with a lag of one quarter.
 8It is proposed that PWAV be calculated every quarter from the formula. Henry Hub, Netback consumptions will be obtained from authoritative industry sources like IEA, Argus etc, EIA etc.
 8The netback price of LNG to be delivered in Japan from various potential sources across the globe can be determined from the FOB price at the loading country.
 8The netback FOB prices and volumes at those prices from various exporting countries are available from LNG Daily and World Energy Intelligence, Argus, Platts etc.
 8The FOB price includes liquefaction costs of gas at the plant in the producing country at the loading port, plus the transportation, including handling and sweetening charges of the gas from the producing asset to the liquefaction plant.   Details

Rangarajan Committee Report-IV: Price to be fixed every quarter

May 21:  The petroleum ministry has proposed a Gas Pricing Committee with the following members to determine the correct price of gas according to the formula it has proposed
 8Director PPAC
 8Advisor (Finance) in the petroleum ministry
 8Director (Marketing) of GAIL
 8Director (Commercial) of PLL
 8An oficer of Customs department of the rank of Commissioner Customs (to be nominated by the Ministry of Finance)
 8This Committee will meet every quarter to compute and finalize the gas price calculations, which will be applicable for the coming quarter.
 8The gas price would be notified in advance on a quarterly basis using the data for four quarters, with a lag of one quarter   Details

Rangarajan Committee Report-V: Other ministries come out with their own formulas

May 21: When the petroleum ministry note on gas pricing was circulated for inter-ministerial comments, the Planning Commission, the ministry of finance and the DOF suggested their own formulas. The petroleum ministry calculated the corresponding prices arrived at against each of these formulations. The following are the details:
 8The petroleum ministry: Uses the Rangarajan Report formula to arrive at an indicative gas price of $6.7775/mmbtu
 8The Planning Commission formula calls for market based pricing regime based on Import Price Parity, arriving at a value of $10.80/mmbtu
 The finance ministry has proposed two scenarios:
 8Rangarajan Methodology excluding the second leg of the formula that takes into account prices in international hubs and Japanese imports. The price comes to $6.77/mmbtu but the price is likely to be much higher at $8.5 to $10.0 / mmbtu in 2013-14 and 2014-15.
 8Rangarajan methodology but only taking the netback from long term contracts: The price for January 2011 was $2.90/ mmbtu. The netback value at the wellhead based on only long term contract would be $4.31 / mmbtu for 2011-12 and $6.79 / mmbtu for 2012-13. The price projected is $8.93 / mmbtu in 2013-14, $10.29 / mmbtu in 2014-15 and $10.92 / mmbtu in 2015-16, assuming JCC price of USD 110/ barrel.
 8The DOF has called for a weighted average of the two legs of the pricing formula instead of a simple average. The price comes to $6.78/mmbtu.
 8The power ministry's cost plus regime allows for a price of only $4.14 /mmbtu.   Details

Rangarajan Committee Report-VI: Power and fertilizer sectors to end up paying a heavy price

May 21: There will be a heavy price to pay if the gas price is increased according to the formula recommended by the Rangarajan Committee and adopted by the petroleum ministry.
 8There will be substantial additional outgo on fertilizer subsidy.
 8Overall impact of increase in gas price by $1/ mmbtu will be Rs 3155 crore per annum from 2013-14 onwards for 23 MMT urea production.
 8This will increase to Rs 4144 crore per annum per $1/ mmbtu increase of gas price, for 32 MMT urea production from 2017-18 onwards.
 8The impact of every US dollar increase in gas price would be about Rs 10,040 crore per annum on the power sector, at 70 % Plant Load Factor (PLF) for 28,000 MW capacity.
 8On the other hand, it is argued that the increase in price of gas will raise overnment revenues through royalty and profit Ppetroleum to be paid by producing companies. Such increase will depend on actual production, profit share of government and the actual price to be paid. The petroleum ministry however found it difficult to quantify the increase. The exercise could be undertaken on the basis of assumptions, but this would be hypothetical at best, the ministry felt.
 8The increase in gas price will raise revenues of E & P contractors both in public and private sector. Such increase will depend on actual E & P costs, profit share as per PSC, gas prices etc. Various scenarios can be built up on the basis of assumptions, but these would be hypothetical again, the ministry claimed   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.