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FAI opposes gas pricing formula of panel

FAI opposes gas pricing formula of panel

Fertiliser Association of India (FAI) warned that the natural gas pricing formula suggested by the Rangarajan Committee, if implemented, would raise the price of urea considerably.

At present there is a production of about 18 million tonne of urea using natural gas in the country. An increase of $1 per million BTU will increase the total cost of production of urea by more than Rs 2,300 crore, FAI added.

It may be recalled that the panel suggested a pricing formula which gives 50 per cent weightage to prices in the US, Europe and Japan put together and other 50 per cent weightage to the imported LNG (Liquefied Natural Gas) in India.

The association feels that 50 per cent weightage should not be given to imported price as India’s import of LNG is very very small — just 2 per cent of the gas traded in the other regions — and under a single contract at present.

The total volume of gas consumed in the USA, Europe and Japan taken together is estimated at about 1,150 billion cubic metre (BCM) annually, while, India’s imports are just 19 BCM, it added.

Any formula should take a weighted average of the entire gas markets taking into account the volumes traded at various prices. The domestic gas is a natural resource.

The industry body feels that it would be grossly incorrect to link the price of domestic gas with cost of imported gas in India or Japan. If the recommended formula of pricing of domestic gas is implemented it may increase the price of gas significantly, it said.

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