Cos to pay Rs 1,650 cr more for R-LNG

The proposed hike in the price of long-term regasified liquefied natural gas (R-LNG) contracts by Petronet LNG(PLL) will put an additional burden of around Rs 1,620-1,650 crore annually across 500 R-LNG consumers. The biggest loser will be the government itself as it will now have to increase the subsidies given to fertiliser companies and may have to shell out an additional Rs 500 crore a year.

The fertiliser sector is the single biggest user of long-term R-LNG, with almost 35% to 40% offtake followed by companies in the power, steel and automobile sector. Companies such as Essar Steel, Maruti Udyog, NTPC nd fertiliser companies and co-operatives such as National Fertilizers, IFFCO, Kribhco, Chambal Fertilizers, Oswal, Tata Chemicals, GNFC and GSFC will all be affected by this decision.

The government on Wednesday allowed PLL to rationalise the long-term prices of R-LNG by averaging out the prices of the existing long-term LNG agreements with the new ones. This means an across-the-board hike of as much as $1.40 per mbtu(million British thermal unit) in R-LNG prices for all existing long-term down stream consumers of PLL. LNG is currently being marketed by GAIL India (80%) and Gujarat State Petroleum(20%).

Talking to ET, IFFCO director (technical)VK Bali said: ?We will not be affected by the price hike as fertiliser units get subsidies from the government on the input cost and any increase in the costs will be provided for by the government.? The two fertiliser units of the co-operative consumes close to 4 mmscmd R-LNG.

However, companies in other sectors won?t be as lucky. Maruti Udyog, which consumes about 0.8 mmscmd R-LNG, will have to shell out an additional Rs 70 crore, while Essar Group companies ? large consumers of the long-term R-LNG ? will see an escalation in their input costs. ?The rationalisation of LNG price will catalyse expansion of gas-based power generation plants. The plants had not been willing to expand capacities as the new R-LNG were at a much higher cost,? sources in the petroleum ministry said. The immediate gainer of the decision will be Ratnagiri Gas and Power at a delivered cost of $5.84 per mbtu. This will lower the per unit cost of production from Rs 5.25 to Rs 2.80 per unit.

Source: The Economic Times, Ahmedabad, January 22, 2007
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