After fertiliser, the power ministry has also opposed the recommendations made by the Rangarajan panel to increase domestic gas price from the current $4.2/mmbtu to $8.8/mmbtu, saying it will impact the power sector by about R46,360 crore annually.

The gas supplies to the sector have completely halted from the KG D6 block of Reliance Industries, which recently hit an all-time low of 15.5 mmscmd from a peak of 69.43 mmscmd in March 2010.

Fertiliser min to oppose planned move to give priority to power sector

The oil ministry’s intent to give priority to the power sector for allocation of gas has raised an alarm in the fertiliser ministry. Sources have indicated that the fertiliser ministry will strongly oppose the move when oil ministry circulates the a note on gas allocation for approval of the empowered group of ministers’ (EGoM). It is also likely to seek higher priority for the fertliser sector so that benefits of cheaper fuel reach the country’s farming community.

Banking on the phased deregulation of diesel pricing, the government proposes to cap subsidy on this fuel at R6 per litre in 2013-14 to insulate itself from volatility in global crude oil prices wh

The C Rangarajan committee’s proposal to nearly double the domestic price of natural gas, if implemented, could adversely affect the government’s subsidy reduction plan and make the new urea invest

Ever since the ban on Iranian oil imports by European Union nations came into effect in February 2012, Indians oil companies have gradually reduced their dependence on oil from the West Asian country and put in place alternative arrangements.

India aims to cut Iranian oil imports by around 15% every year from the current level of 15 million tonne, which itself is down 35% from the level in 2008-09. The country's largest buyer of Iran crude oil, Mangalore Refinery and Petrochemicals (MRPL), has reduced imports from the country to 5 million tonne this fiscal from 6.2 million tonne in 2011-12.

In a bid to neutralise political opposition to planned fuel price hikes, the government is considering a two-step process: First, allow up to 12 subsidised domestic gas cylinders per year from the currently proposed nine and later, raise prices of LPG and diesel in a phased manner.

Sources told FE that a compromise is being worked out after some Cabinet ministers termed the six-cylinder cap and the proposed fuel price hike as “politically suicidal”. A section of the ruling coalition too feels these steps could cost the UPA at the hustings.

Faced with a hefty bill of close to R1 lakh crore this fiscal towards compensating oil marketing companies on selling diesel below cost and naysaying by the finance ministry, the petroleum ministry is set to ask the bulk consumers of the fuel to buy it at market rates.

Currently, bulk consumers — power plants based on diesel, companies with captive power units, the railways and road transport corporations — buy the fuel at subsidised rates but at slightly lower rates than the retail consumer, thanks to a waiver of dealers’ commission and discounts offered by the oil companies which compete to get the tenders.

Finmin aims to make substantial savings in oil subsidy payouts

Alarmed by the R1.7-lakh-crore oil subsidy demand for this fiscal, the finance ministry has decided to revisit a suggestion made by expert committees in the past: Work out the subsidy entitlement of oil marketing companies (OMCs) according to 100% export-parity pricing of petroleum products. Under this system, the refinery-gate price of products — petrol, diesel, cooking gas and kerosene — due to OMCs will be arrived at as an average of export (FOB) prices of these product in select markets. The difference between the price realised by OMCs — they sell below cost in the subsidy regime — and the export price determined will be the “under-recoveries”, compensated through subsidy.

The Rangarajan Committee’s proposal to double the domestic natural gas price will give major relief to ONGC, which has been hit by the policy of giving upstream firms a larger share of oil subsidie

Fertiliser majors waiting to make investments in new urea plants have reasons to cheer as the government has promised, subject to a ceiling, it would cover the additional cost from natural gas imports given the paucity of domestic gas.

Currently, the Asian spot price of the feedstock, which forms over three-fourths of the cost of production of fertilisers, is $14 per million metric British thermal unit (mmBtu), while the domestic gas is priced at $4.2/mmBtu. The government has said it would bear the difference in costs arising out of the fertiliser companies importing gas to meet their needs, to the extent the imported gas price is below $14/mmBtu.