India revises gas procurement rules for fertiliser firms to cut costs - sources (updated)

Rashtriya Chemicals and Fertilizers

22/12/2022 08:21

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      Fertiliser companies can buy 20% of gas from spot market
    

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      Government aims to cut fertiliser subsidy by up to 240 bln
    

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      Companies mandated to honour 40% of purchase commitment
    

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      Shares of fertiliser companies fall
    

  
 (Adds detail, background, share movement)
    By Sarita Chaganti Singh and Shivangi  Acharya
       NEW DELHI, Dec 22 (Reuters) - India has revised the gas
procurement policy for fertiliser companies, allowing them to
buy about a fifth of their monthly needs through the domestic
spot market to help the government cut its subsidy bill, two
government officials said.
    The federal government provides financial support for
domestic fertiliser sales at rates below the market to insulate
farmers from high prices and to contain inflation.
    The government expects to cut its fertiliser subsidy bill by
up to 240 billion rupees if the fifth of companies' supplies is
bought through bilateral contracts or gas exchange, said one of
the government officials, who declined to be identified.
    India, which imports up to 40% of the 50 million tonnes of
fertiliser it needs annually, has been hit hard by rising prices
after Russia's invasion of Ukraine disrupted supplies. Russia is
a major fertiliser producer.
    Early last month, Fertilisers Minister Mansukh Mandaviya
said that due to higher global prices, India's fertiliser
subsidy bill for the fiscal year would rise to a record 2.25
trillion rupees from about 1.5 trillion rupees the previous
year.
    "To help rein in the fertiliser subsidy bill for next
fiscal, the fertiliser ministry is trying to rework the
mechanism of how gas is procured by fertiliser plants," said a
second government official, who also declined to be identified.
    Both of the officials are directly involved in the issue but
are not authorised to speak to media.
    The government has amended 2015 gas procurement guidelines
under which fertiliser plants had to procure 80% of their gas
through long-term contracts, and the balance through three-month
tenders, they said.
    "Three-month prices are high as there is lot of padding and
hedging by suppliers, more so since there is so much volatility
in global gas prices," the first official said.
    Under the revision, fertiliser companies will have to buy
40% of their supplies under a "take or pay" rule, in contrast to
no minimum purchase required under the guidelines previously,
the official added.
    The fertiliser ministry did not immediately respond to a
request for comment.
    The "take and pay" rule led to shares of state-run
fertiliser companies, National Fertilizers Ltd, Rashtriya
Chemicals and Fertilizers Ltd, falling by 4% to 5% after the
news, under performing the broader index.
    Fertiliser plants can source gas through the Indian Gas
Exchange and inter-company contracts. The new rule also allows
fertiliser companies to withdraw tenders if they feel the
bidding has led to higher-than-expected prices.
    Fertiliser plants bought gas at $38 per million British
thermal units (mmBtu) for supply in the October-December quarter
through a tender. The maximum price quoted in the tender was $55
while gas was available at the Indian Gas Exchange and bilateral
markets for $15 to $20 per mmBtu.
    Asia's third-largest economy needs crop nutrients to feed
its huge agriculture sector, which employs about 60% of the
workforce and accounts for 15% of nearly $3 trillion economy.
 (Reporting by Sarita Chaganti Singh and Shivangi Acharya in New
Delhi; Editing by Krishna N. Das, Robert Birsel)
 ((Shivam.Patel@thomsonreuters.com;))