Oman hikes gas price, India’s $1 bn fertilizer plant hit.

NEW DELHI: A billion-dollar venture of public sector cooperatives Iffco and Kribhco in Oman is in jeopardy as Muscat has trebled the price of gas it supplies to India's only overseas fertilizer plant ahead of schedule.

Government officials told TOI that Oman has asked Omifco -- Iffco and Kribhco's joint venture with Oman Oil Company -- to pay $3 for each unit of gas against 77 cents it pays now.

The Omani move will also push up the government's annual fertilizer subsidy by Rs 500 crore since the cost of fertilizer sourced from the plant will rise by $60 per tonne, government sources said.

"Oman government has made it clear that the new rate will be effective from January 1, though Omifco has been allowed to make provisional payments at old rates till March 31. They won't give any leeway after this date," an official said.

The plant was started in 2005 with an annual capacity to produce nearly 2 million tonnes of urea and ammonia, or a third of India's annual fertilizer imports. The price revision was due only in July 2015.

Omifco runs up a fuel bill of $39 million a year and may not be able to absorb the steep hike in gas price since it sells its products to India at pre-determined prices under long-term contracts.

"The plant's viability would be in question unless product prices set in offtake agreements too are revised. Also, the company will have to start paying income tax to Oman authorities from 2016, which will hit profitability," the official said.

Urea imports from Omifco save some Rs 1,500 crore in subsidy bill since the $166 per tonne price in 2010-11 under long-term contract is lower than international rates that range between $333 per tonne and $500 a tonne.

Sources said higher gas prices would reduce the government's saving on subsidy by Rs 465 crore. The increased prices, however, would still be lower than international rates.

The odds would, however, be against India in case New Delhi does not agree to a higher gas price. Oman could cut off gas and power supplies to the project, forcing India to import more fertilizers at higher cost from the open market.

The Omani move has been prompted by a drop in oil and gas reserves estimates and street protests demanding more jobs and reforms. Demonstrations have also targeted cheap gas to Omifco, even as people faced higher tariffs for electricity - mostly from gas-fired plants that are facing higher fuel costs.

Source : timesofindia.indiatimes.com