Fall in gas prices to reduce urea subsidy burden: Ind-Ra
06/04/2015 11:39
India Ratings & Research (Ind-Ra), a part of Fitch group, has said that the indigenous urea subsidy bill will be eased marginally by Rs 9.3 billion in FY16 follwing the 7.72 per cent cut in domestic natural gas prices to USD 4.66 per mmbtu (million metric British thermal unit) from USD 5.05 per mmbtu. The downward revision in prices is applicable for the period 1 April 2015 to 30 September 2015 and is due to the decline in gas prices at the bench mark indices of Henry Hub (HH) in the US, National Balancing Point (NBP) in the UK, Canada’s Alberta Hub as well as Russia’s energy hub, over the reference period January 2014-December 2014, the agency reported. Natural gas, which forms a majority of the raw material cost for urea production in India, is a pass through for gas based urea producers up to their respective reassessed capacities. Around 80 per cent of indigenous urea is produced using domestic gas. Urea retail prices are controlled by the government and any change in gas prices is absorbed by the government of India (GoI) through subsidies. Ind-Ra had earlier reported that the subsidy burden for indigenous urea had increased due to the upward revision of gas prices in November 2014. However, factoring in the November 2014 increase in gas prices, the recent downward revision will partly offset, albeit marginally, the subsidy burden by 2.4%. Nevertheless, urea subsidy requirements will continue to remain high despite the proposed reduction, as gas prices remain higher than the FY14 level of USD4.2 per mmbtu.
06/04/2015 11:39
India Ratings & Research (Ind-Ra), a part of Fitch group, has said that the indigenous urea subsidy bill will be eased marginally by Rs 9.3 billion in FY16 follwing the 7.72 per cent cut in domestic natural gas prices to USD 4.66 per mmbtu (million metric British thermal unit) from USD 5.05 per mmbtu. The downward revision in prices is applicable for the period 1 April 2015 to 30 September 2015 and is due to the decline in gas prices at the bench mark indices of Henry Hub (HH) in the US, National Balancing Point (NBP) in the UK, Canada’s Alberta Hub as well as Russia’s energy hub, over the reference period January 2014-December 2014, the agency reported. Natural gas, which forms a majority of the raw material cost for urea production in India, is a pass through for gas based urea producers up to their respective reassessed capacities. Around 80 per cent of indigenous urea is produced using domestic gas. Urea retail prices are controlled by the government and any change in gas prices is absorbed by the government of India (GoI) through subsidies. Ind-Ra had earlier reported that the subsidy burden for indigenous urea had increased due to the upward revision of gas prices in November 2014. However, factoring in the November 2014 increase in gas prices, the recent downward revision will partly offset, albeit marginally, the subsidy burden by 2.4%. Nevertheless, urea subsidy requirements will continue to remain high despite the proposed reduction, as gas prices remain higher than the FY14 level of USD4.2 per mmbtu.
