Growth potion

Mumbai, July 22: The department of fertilisers has proposed the revival of the freight equalisation scheme for the supply of natural gas to the fertiliser industry.

Under this scheme, freight incentives are given to industries located far away from raw material sources. This system was done away with in 1992. The department is keen on reviving the scheme as the fertiliser sector wants priority in natural gas allocation.

The department fears that since natural gas is being supplied from a few regions in the country, its availability will only benefit companies that are located close to the feedstock. Companies located far away from the source will be burdened with higher costs.

J.S. Sarma, secretary of the department, has mooted this idea at a recent meeting of the committee of secretaries.

However, Sarma’s proposal has not found favour with the Planning Commission. Kirit Parikh, a member of the commission, said freight equalisation for natural gas might not be possible.

The domestic fertiliser sector is facing an acute shortage of natural gas as the Centre has encouraged the conversion of non-gas fertiliser plants to gas-based ones. The industry is, therefore, keen that they get the best terms from any future natural gas supplies, particularly those emanating from Reliance Industries Limited’s Krishna-Godavari basin.

The total actual average supply of gas to the fertiliser sector during 2005-06 was 28.483 million standard cubic metres per day (mmscmd). According to estimates, the overall requirement of natural gas for fertiliser units is 76.26 mmscmd, which includes immediate, medium-term and long-term requirement for expansion projects and the revival of closed units.

In a recent meeting with the committee of secretaries, the department said while consumption of fertilisers in India was low compared with that in other countries, there was a need to not only increase its consumption but also the production.

It also said close to Rs 26,000 crore had been invested in the sector. Though turnover stands at Rs 43,600 crore, there was stagnation in indigenous capacity and production apart from a steep rise in costs of imported raw materials and intermediates.

With consumption expected to rise over the next few years, the department said priority should be given to urea units.

Natural gas has been the preferred feedstock for production of urea as it is a more efficient and cleaner source of energy and more cost effective.

Earlier, the department told a committee on chemicals and fertilisers that it would try to make gas available by 2008-09 and that it was asking all fertiliser units in the country to enter into arrangements with RIL or GAIL (India) Ltd.