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Pooling of gas prices for fertilizer industry-I. Pooling of gas prices for fertilizer industry-II: Need for long-term off-take agreement or joint ventures projects in gas-rich countries . Pooling of gas prices for fertilizer industry-III: At landed cost of RLNG below $10/mmbtu and urea more than $300/MT, it is beneficial to produce urea through RLNG as compared to imports. Pooling of gas prices for fertilizer industry-IV: News Briefs. DOF issues notification to clear air on applicability of NBS rates on year-end stock of P&K fertilizers. Indian Potash to import 1.35 million tons of fertilizers from PhosAgro by 2018. Gas-based urea capacity to increase from 24 MMTPA at present to 32 MMTPA by 2016-17, believes EIL. Crop damage caused by unseasonal rainfall: Agricultural output expected to stagnate on a year-on-year basis, feels ICRA. News Briefs. No increase in price of urea for next four years: Is it good or bad news?. Matix to conduct trial runs from September-I: Domestic price will be applied on gas to be supplied from Raniganj field. Matix to conduct trial runs from September-II: Series of RFQs likely going ahead. MCFL bailed out by Delhi High Court but bottomline hit: Will an adversarial position with government hurt business?. GAIL appropriates space for itself in fertilizer industry: Download presentation . 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.

Pooling of gas prices for fertilizer industry-I

June 2: The government has recently approved a major policy initiative to supply gas at uniform price to all urea manufacturers on the gas grid through a pooling mechanism but one of the leading rating agencies, the Credit Analysis & Research Limited (CARE Ratings), feels that more reforms are required to give boost to the fertilizer sector, apart from gas pooling.
 
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In CARE’s view, the domestic gas availability for urea manufacturing at present should be allocated on pro-rata basis to all companies and for balance manufacturing capacity a mix of manufacturing through RLNG and import should be adopted for supply in the domestic market.
 
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For this, CARE feels that the recent policy should be modified to allow individual fertilizer companies to import urea, if required, through present designated entities as this will result in substantial amount of savings in subsidy outgo in near to medium term in the present scenario of reduced international price of urea.
 
8In FY15, out of total urea consumption of 31.33 million metric tonne per annum (MMT), 22.58 MMT was from domestic production and balance 8.74 MMT was through imports. The average FOB price (black sea) for urea in April 2015 was $259/MT and it was in the range of $300-325/MT in FY14 and FY15. The landed cost adds up to another $30/MT.
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Pooling of gas prices for fertilizer industry-II: Need for long-term off-take agreement or joint ventures projects in gas-rich countries

June 2: Care Ratings is of the view that there is a need for long-term off-take agreement or joint ventures projects in gas-rich countries.
8The rating agency feels that efforts should be accelerated to set-up manufacturing units through joint ventures (JV) in gas rich countries (where gas cost is around USD 3/mmbtu) as more than 70% of the cost of production of urea comprises gas cost.
8One of such arrangement is already in place with Oman India Fertilizer Company (OMIFCO) under long term off-take agreement (2 MMPTA) till FY20 and which has costing as low as USD 150-175 per MT of urea. At present, the government is facilitating to set up urea/ammonia Joint venture (JV) project in Iran with capacity of 1.3 MMTPA. However, the project is still under consultation stage to identify an Iranian JV partner for a long time.
8Furthermore, such arrangements could also be explored with Chinese entities where around 70% of urea manufacturing units are based on low cost coal gasification technology. As per the latest estimates, China’s urea production capacity is 81 MMTPA, while its domestic use and export together is only 65 MMTPA leaving the balance as surplus capacity.
8The company feels that long-term off-take agreement or JV projects with China can ensure availability of supply but prices should be market linked. Urea imports from gas-rich countries are likely to be cost effective compared to domestic plants running on RLNG. If required, the government should provide sovereign guarantee, at least till the payback period, to mitigate adverse effect from any factors such as political unrest or introduction of new laws prohibiting production.
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Pooling of gas prices for fertilizer industry-III: At landed cost of RLNG below $10/mmbtu and urea more than $300/MT, it is beneficial to produce urea through RLNG as compared to imports

June 2: CARE Ratings, in its report, has pointed out that at a landed cost of RLNG below $10/mmbtu and urea costing more than $300/MT, it is beneficial to produce urea through RLNG as compared to imports.
 
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At these rates, the savings in subsidy on import of urea is pegged at Rs 34 crore in 2015. In 2016, 2017 and 2018, at same costs, the savings are estimated at Rs 50 crore, Rs 60 crore and Rs 61 crore, respectively.
 
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As per the company's analysis, the savings would go up with an increase in the landed cost of RLNG. If the landed cost of RLNG goes up from $10/mmbtu to $12/mmbtu (with the landed cost of urea remaining at the same level at $300/MT) the savings in subsidy on import of urea goes up from Rs 34 crore to Rs 1,444 crore in 2015. In 2016, 2017 and 2018, the savings in subsidy would be Rs 2,134 crore, Rs 2,572 crore and Rs 2,614 crore, respectively.
 
8Then again, if the landed cost of RLNG is taken as $14/mmbtu and the urea cost at $325/MT, the savings are pegged even higher at Rs 2,014 crore in 2015, Rs 2,978 in 2016, Rs 3,588 crore in 2017 and Rs 3,648 crore in 2018, respectively.
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Pooling of gas prices for fertilizer industry-IV: News Briefs

June 2: CARE Ratings, in its reports, has also sought the following dispensations:
8Allow free import of fertilizer urea: The government has allowed import of urea for industrial purpose under open general license (OGL) in April 2015 and hence, modification of rules for import of fertilizer urea could also mitigate few concerns such as heightened subsidy bill. However, any amount of substitution of domestic production by imports faces large amount of uproar due to adverse effects to direct and indirect employment which restrict the government to go bold on reforms, feels CARE.
8DoF requests for additional allocation of Rs 32,677 crore to clear the subsidy arrears in 2014-15: The concerns related to insufficient subsidy budget is likely to continue in light of limited breathing space available to the government due to fiscal concerns and insufficient domestic gas availability.
The Department of Fertilizer (DoF) had requested Ministry of Finance (MOF) for additional allocation of Rs 32,677 crore in addition to the budgetary allocation of Rs 77,070 crore in FY15 to clear the subsidy arrears. Notably, the budget deficit was not met through special banking arrangements (SBA) in FY15 and was subsequently paid from FY16 fertilizer subsidy budget.
8Coal gasification technology is cost effective but has its own share of environmental concerns: With the use of cost efficient coal gasification technology which is operational in China, efforts should also be made to set-up new urea units in coal rich states instead of setting of gas based units to save on manufacturing cost.
One such initiative is already under consideration for revival of the Talcher unit of the Fertilizer Corporation of India Ltd. However, environmental and regulatory issues may need to be sorted out before adoption of coal gasification technology.
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DOF issues notification to clear air on applicability of NBS rates on year-end stock of P&K fertilizers

June 1: As the present NBS policy is silent on the applicability of Nutrient Based Subsidy (NBS) subsidy rates on the year end closing stock of finished fertilizers, the DOF has issued a notification to deal with the closing stocks of fertilizers for the purpose of subsidy.
8As per the notification, in case of an increase in the rates of subsidy, stocks of all the finished fertilizers held by the company as well as finished fertilizers in transit but not received at the district headquarters as on the day preceding the effective date of the applicability of the revised rates of the subsidy shall be treated as closing stock at the end of previous year and shall be eligible for the subsidy rates of the previous year.
8Conversely, whenever there will be a reduction in the rate of subsidy, the closing stock of a particular grade of fertilizer (on the date from which the revised rates become effective) will be eligible for the revised rate of subsidy.
8It is pertinent to note that he Nutrient Based Subsidy (NBS) Policy for decontrolled P&K fertilizers has been under implementation  with effect from April 1, 2010.  Under the policy, a fixed amount of subsidy decided on an annual basis is announced on each grade of these fertilizers based on their nutrient content. The MRPs of these fertilizers are fixed by the fertilizer companies at reasonable level.
8The new subsidy rates announced by the government are normally made applicable from the first day of the following financial year. The subsidy is paid based on the date of receipt/sale of fertilizers in the District HQ/dealer or retailers. The subsidy rates which are decided and announced by the government vary and can either be more or less compared to the previous year's subsidy.
8As it was felt that at the time of announcement of new subsidy rates, the companies could hold some stocks of finished fertilizers, a clarification was required to deal with the issue.
Click here for the notification
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Indian Potash to import 1.35 million tons of fertilizers from PhosAgro by 2018

June 1: Indian Potash Ltd has signed an MOU with the Russian PhosAgro for the supply of 1.35 million tonnes of NPK, NPS and DAP fertilizers to India between 2015 and 2018.
8PhosAgro is quite excited about the agreement. The company expects that this year India will increase its imports to between 5.5 million and 6 million tonnes, compared to very weak purchases in 2014 of just around 3.5 million tonnes.
8Since the beginning of the year India has already purchased 2.2 million tonnes of Diammonium phosphate (DAP) in the first half of the year which is 900 000 tons more than in 2014.
8Over the last two years, PhosAgro has exported practically no fertilizer to India on the background of weak demand. At the beginning of the year, the company concluded a contract for 500,000 tons in addition to a three year agreement.
8The Indian fertilizer market at present is showing a stable demand for NPK/DAP fertilizers, believes PhosAgro. Indian DAP imports have improved dramatically already in 1H 2015 compared to 1H 2014, and current market expectations are that the country will take another 3 million tonnes by the end of the year.
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Gas-based urea capacity to increase from 24 MMTPA at present to 32 MMTPA by 2016-17, believes EIL

June 1: The gas-based urea capacity will increase from 24 MMTPA at present to 32 MMTPA by 2016-17, believes Engineers India Ltd (EIL).
8The company, which provides engineering services to fertilizer companies, among others, is laying emphasis on conversion of present naphtha/fuel and oil based plants to use of natural gas as feed stock as also on greenfield urea plants.
8In a recent presentation, made to investors, the company said that as much a a quarter of its total orders (both consultancy and LSTK) has come from the chemicals and fertilizer sector in 2014-15.
8Talking of only of consulting orders, the share of chemicals and fertilizer segment is estimated at 31% in 2014-15.
8It is pertinent to note that EIL recently picked up 26% stake in the Rs 4,500 crore Ramagundam fertilizer project where it will also work as the EPCM consultant.
Click here to access the presentation
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Crop damage caused by unseasonal rainfall: Agricultural output expected to stagnate on a year-on-year basis, feels ICRA

June 1: The rating agency ICRA is of the view that the agricultural output this fiscal is expected to stagnate on a year-on-year (y-o-y) basis on account of crop damage caused by unseasonal rainfall, among other factors.
8However, despite the headwinds posed by muted global growth and an unfavourable monsoon outlook, the rating agency ICRA expects the Indian economic growth to improve to 7.6-7.8% in 2015-16 from 7.3% in 2014-15.
8Although harsher-than-expected monsoon dynamics and muted export growth pose risks to the India`s growth story, ICRA expects it to outpace the expansion recorded by most countries with a comparable size in the current fiscal.
8Going forward, higher government spending on infrastructure, simplification of clearances, easing of norms for foreign direct investment, continued reform momentum and monetary easing are expected to support a revival in investment activity in FY 2015-16, ICRA believes.
Click here for more information
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News Briefs

June 1:  8Sanjay Gupta replaces Purwaha as CMD, EIL: A. K. Purwaha has ceased to be the Chairman & Managing Director (CMD) of  Engineers India Ltd (EIL) with effect from today (June 1, 2015) on attaining the age of superannuation on May 31, 2015.
--In his place, Sanjay Gupta, Director (Commercial), EIL, has been appointed as the CMD of the company with effect from June 1, 2015.
--An engineering graduate from IIT Roorkee, Gupta has about 34 years of experience in the company ranging from planning to implementation of mega grassroots projects in the refineries and petrochemical sector.

 8Fertilizer production down by 0.04 % in April 2015: Fertilizer production -- which has weightage of 1.25% in the Index of Industrial Production (IIP) -- declined by 0.04 % in April 2015.
 --In March 2015, the production had increased by 5.2%.
 --Its cumulative index during 2014-15 declined by 0.1% over 2013-14.
8Changes in the management of Punjab Chemicals & Crop Protection Ltd: Punjab Chemicals & Crop Protection Ltd has informed the BSE about the following decisions taken by the Board of Directors of the company:
 --G. Narayana has stepped down from the position of the Chairman and also as the Director of the Company. Recognizing his invaluable and continuous contribution, the Board of Directors has designated him as the "Chairman Emeritus" of the company.
 --Mukesh Dayabhai Patel, Independent Director and Vice Chairman of the company, has been elevated as the Chairman of the company.
 --Nomination of Sheo Prasad Singh, Additional Director, as the Independent Director of the company will be placed before the Members in the ensuing Annual General Meeting (AGM).
 --S. S. Tiwari, Whole Time Director (WTD), has resigned from his position. The Board of Directors has now appointed him as an Additional Director of the company.
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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, political masters can be whimsical when it comes to dealing with the subject.
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Matix to conduct trial runs from September-I: Domestic price will be applied on gas to be supplied from Raniganj field

May 29: Matix Fertilizers is now readying plans to commission its 3850 MTPD urea complex at Panagarh in West Bengal by September, 2015. This is the time limit given by Essar Oil Ltd (EOL) to supply the minimum 1.2 mmscmd of gas from its Raniganj CBM field so that commissioning work can begin in the urea plant.
 
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A full capacity run is slated for March, 2015 when gas production will go up to 2.3 mmscmd. It is pertinent to note that EOL will have to drill hundreds of wells to be able to reach this target production as output per well in CBM fields are low in comparison to conventional natural gas fields.
 
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The pricing of gas is a sensitive subject for Matix, but for the present, the cost of gas will be the equivalent domestic price as per the petroleum ministry approved formula.
 
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This is going to be a significantly cheaper price than the one that will be obtained from the pooling of gas by GAIL. Pooled gas price is only to be charged from those fertilizer units which have pipeline connectivity -- wherein pooled gas (comingled or otherwise) can be supplied -- and since Matix is not connected, the company will be charged only the domestic price for gas.
 
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Even if a pipeline is built -- and in this case the Jagdishpur-Haldia pipeline -- the question of whether the Matix unit will be considered as "connected" will be a subject of debate, as one point of view can well be that the unit is "captive" to the Raniganj plant.
 
8Eventually however, it will not matter whether pooled gas or domestic gas is supplied to Matix as input cost is a pass through under under government policy.
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Matix to conduct trial runs from September-II: Series of RFQs likely going ahead

May 29: As part of an effort to provide news and analysis to all stakeholders in the fertilizer sector, we are running tests on a first-of-its-kind project database, which will run on a Liferay JAVA platform, that will provide dynamic information on all upcoming fertilizer projects in India spread over a hundred parameters. The database will be unveiled soon as a free service along with this website. Increasingly, we will be covering fertilizer projects more dynamically in our general news section as a service for suppliers of equipment and services to the fertilizer industry.
 
8Matix Fertilizers will be floating Request for Quotations (RFQs) for the remaining pre-commissioning and commissioning jobs for its urea unit in June, 2015. Some consultants have already been lined up but more work will be in the offing as commissioning activities are likely to continue over a period of time.
 8Then again, RFQs are likely to be floated for a debottlenecking exercise that will raise capacity from the current 1.3 MMTPA to 1.5 MMTPA. The management believes that RFQs will come out in January, 2016.
 8There is also a brownfield plant of equal capacity that Matix is planning to build once operations stablize in the existing plant. RFQs for package contractors are expected in April, 2016.
 8The unit will have surplus power that it can feed to the grid through its 54 MW captive GT/HRSG power plant. At full capacity, the existing urea plant will consume around 25 MW of power, leaving the extra capacity to be exported until fresh brownfield urea capacity can come up. But whether extra power can be produced will depend critically on the cost of gas and its availability, and eventually on the cost of power. Power traders scouting for new power sources for trading through the bilateral route may be interested in this information.
 Click on Details for names of key project contacts that you can get in touch with for more details
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May 29: MCFL bailed out by Delhi High Court but bottomline hit: Will an adversarial position with government hurt business?   Details
May 29: GAIL appropriates space for itself in fertilizer industry: Download presentation   Details
May 28: Ramagundam urea plant: EIL makes a frontal entry into the fertilizer sector, to get Rs 190 crore as EPCM consultant   Details
May 28: Bulk of the increase of world demand for fertilizers expected to come from India and China: FAO   Details
May 28: Environment ministry nod for Rs 150 crore de-bottlenecking project at Tata's Babrala plant   Details
May 28: News Briefs   Details
 
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