Subsidy for fertiliser firms declines with use of K-G gas

Fertiliser companies’ revenues have suffered as their costs have gone down with the substitution of cheaper K-G Basin gas for naphtha, since the government subsidy is based on the cost of production.SC resumes gas hearing with RIL's recap of stand so far
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Companies using the low-cost K-G gas since April have reported lower revenues in the first two quarters of the current financial year. The revenues for fertiliser companies comprise the price realisation from sales and the subsidy it receives from the government.

A lower revenue, in this case, points to a decreasing subsidy burden for the government. The Union government is expected to cut its fertiliser subsidy by Rs 3,000 crore in the current year solely due to this shift to use of K-G gas.

Nagarjuna Fertilisers saw its net sales dip 33 per cent to Rs 862 crore in the six-month period ended September 30. R S Nanda, chief operating officer and director, said the energy cost in gas-based fertiliser production is just one-third compared to the usage of naphtha.

The fertiliser companies are purchasing gas from Reliance Industries Ltd (RIL) at the government-fixed price of $4.20 per million British thermal unit (mBtu) as against $13-14 a unit they paid for naphtha last year. The impact of shift to natural gas at one of its plants has had an impact of Rs 240 crore on turnover during the first six months, he said.

Similarly, net sales of National Fertilisers in the first half of the year declined over 21 per cent to Rs 2,311 crore. A number of fertiliser companies, including the likes of Nagarjuna Fertilisers, National Fertilisers, Chambal Fertilisers and Shriram Fertilisers, shifted from naphtha to natural gas as feedstock due to availability from the KG-D6 block operated by Reliance Industries from April. The shift to natural gas from naphtha has cut energy cost by more than 65 per cent for these fertiliser plants.