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The article “Turn off the gas for fertilisers”, published in these columns on September 18, is factually incorrect and devoid of logic.
First, the facts. Out of a total production of 22.6 million tonnes of urea in 2012-13, only 14 million tonnes was produced using domestic gas.
The balance was produced using imported gas and liquid fuels. The weighted average energy consumption of gas-based plants is 24 million BTU (British thermal units) per tonne of urea. Thus, the domestic gas consumed for urea production is equal to 336 trillion BTU of energy (24 million BTU/tonne x 14 million tonnes).
Taking the figures of the author, there is a price difference of $18 per million BTU of energy between diesel and domestic gas. This difference for urea energy works out to only $6 billion ($18/million BTU x 336 trillion BTU) and not $13.16 billion as claimed in the article.
The Government has already approved the new pricing formula for domestic gas based on the report of the Rangarajan Committee.
The indications are that basic gas price will double to $8.4 per million BTU. This means the difference in cost of energy though diesel and domestic gas will narrow down from $18 to $13.8 per million BTU. The so-called saving claimed by the author by diversion of gas from fertiliser sector will stand reduced to $4.6 billion with effect from April 1, 2014.
Urea import metrics
As far as import of urea is concerned, India imported about 8 million tonnes urea in 2012-13 to meet its requirement of 30 million tonnes.
The total international trade of urea is about 43 million tonnes. India’s import already accounts for almost 20 per cent of this trade. Where will an additional 14 million tonnes, now produced using domestic gas, be available?
If domestic gas is not given to urea plants, these plants will be shut down and the total loss of production will be about 19 million tonnes. Assume for the moment that quantities of this order are available. But what price would we have to pay for it?
The weighted average CFR price of imported urea in 2012-13 for India was $417 per tonne. The prices have softened this year and average price this year may be in the vicinity of $350 per tonne.
If India enters the market even for an additional quantity of 5 million tonnes , prices are likely to go over $500 per tonne.
Assume again the highly improbable scenario that India is able to import 14 million tonnes of additional urea at a price of $500/tonne.
The average cost of production of urea using domestic gas is $190 per tonne ($6.5 per million BTU delivered cost of domestic gas x 24 million BTU + $35 other cost).
Thus imported urea will cost $310 per tonne more than domestic gas-based urea.
The additional cost of import of 14 million tonnes of urea will be $4.3 billion (the difference between the domestic and imported cost of urea of $310/tonne x 14 million tonnes).
In addition, the present import of 8 million tonnes will also have to be imported at higher cost of $500, instead of $350 per tonne.
This will result in an additional cost of $1.2 billion. Since gas-based plants will be shut down, about 5 million tonnes urea using imported gas will also be lost.
The average cost of production, using imported LNG, is also much lower than the estimated $500 per tonne cost of imported urea.
Thus, the total cost impact of importing urea, on the economy, will be much higher than the so-called saving of $6 billion or $4.6 billion (with effect from April 1, 2014) by diversion of gas to power sector.
Cartelisation
The author is also advocating almost complete shutdown of urea plants. India’s urea industry is one of the most energy-efficient. Its replacement cost at today’s prices will easily exceed Rs 1 lakh crore.
The other segment of the fertiliser sector, that is phosphatic and potassic fertilisers, is already dependent on imports of raw materials and products to the extent of 95 per cent of the country’s requirement.
The author wants the second largest consumer of fertilisers in the world to succumb to international suppliers’ cartels. India has had to suspend import of potash due to cartelisation of suppliers and exploitative prices.
While diesel is the basic energy input, fertilisers are finished products. Should one import input or finished product, specially when import of inputs also makes economic sense?
If one extends the logic of the author, why import fertilisers? The country should import foodgrains. The author fails completely to appreciate the concept of food security of a country of 1.25 billion.
(The author is Director General, Fertiliser Association of India)
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