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

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.

The fertiliser ministry has opposed Reliance Industries' demand for hiking the KG-D6 gas price in line with the Asian LNG spot price, effective from April 2014. The ministry wants the price to be not more than $8/mmBtu.

RIL pitched for the gas price, post March 2014, to be about 10% below the spot price of LNG imported from Qatar — $12-13 at current rates. According to sources, during discussions with the government, the fertiliser ministry contended that such a price (on which consumers will have to pay an extra $1-1.5 to cover transporation charges and marketing margins) is not viable for the fertiliser industry whose output is highly subsidised, adding that any such move will cause a burden on the exchequer.

Once synonymous with economic prosperity, Punjab is now languishing at the bottom in terms of economic growth. While an extreme fund crunch has meant insufficient spending on infrastructure creation, the drying up of investment by private companies has landed the state a double blow.