India is unlikely to seek arbitration to resolve a dispute over Oman’s demand to increase the price of gas it supplies to Oman India Fertilizer Co. SAOC (Omifco) by fourfold. Instead, it may negotiate with Oman for a staggered price hike over the next four years. Oman wants to renegotiate a contract with India
and increase the price of gas from $0.77 per million British thermal unit (mmBtu) to $3 per mmBtu. Under the contract Omifco has with Oman, the price of gas was fixed for 15 years beginning 2005, when the unit started production. The contract therefore holds till 2020.
Omifco ships nearly all the urea it manufactures to India under the agreement the country has with the Oman government. The hike in the price of gas will raise the cost of imports from Oman. Omifco produces 1.5 million tonnes (mt) of urea every year. Indian Farmers Fertilizer Co-operative Ltd (Iffco) and Krishak Bharati Cooperative Ltd own 25% each in Omifco. Oman government-owned Oman Oil Co. SAOC owns the rest.
Instead of increasing the price to $3 per mmBtu in one shot, it could be done incrementally, say in three-four years. Under such a mechanism, the price of gas would be raised to $1.5 per mmBtu in the first year and would be raised by $0.5 per mmBtu every subsequent year to touch $3 per mmBtu in four years, said the second person cited above. Under the proposal being worked out, a provision could be made for a revision in the price of gas if the international price of urea falls, the person said.
The freight on-board (FoB) price of urea supplied by Omifco is $150 a tonne compared with the prevailing international open market price of $475-500 a tonne. A fourfold increase in gas price could mean a $60 per tonne increase in the FoB price of urea from Omifco. Such an increase in the gas price could increase India’s fertilizer subsidy bill by as much as Rs450 crore a year if urea continues to be sold at the current market price in India. The country’s fertilizer subsidy bill in 2011-12 stood at Rs90000 crore.
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and increase the price of gas from $0.77 per million British thermal unit (mmBtu) to $3 per mmBtu. Under the contract Omifco has with Oman, the price of gas was fixed for 15 years beginning 2005, when the unit started production. The contract therefore holds till 2020.
Omifco ships nearly all the urea it manufactures to India under the agreement the country has with the Oman government. The hike in the price of gas will raise the cost of imports from Oman. Omifco produces 1.5 million tonnes (mt) of urea every year. Indian Farmers Fertilizer Co-operative Ltd (Iffco) and Krishak Bharati Cooperative Ltd own 25% each in Omifco. Oman government-owned Oman Oil Co. SAOC owns the rest.
Instead of increasing the price to $3 per mmBtu in one shot, it could be done incrementally, say in three-four years. Under such a mechanism, the price of gas would be raised to $1.5 per mmBtu in the first year and would be raised by $0.5 per mmBtu every subsequent year to touch $3 per mmBtu in four years, said the second person cited above. Under the proposal being worked out, a provision could be made for a revision in the price of gas if the international price of urea falls, the person said.
The freight on-board (FoB) price of urea supplied by Omifco is $150 a tonne compared with the prevailing international open market price of $475-500 a tonne. A fourfold increase in gas price could mean a $60 per tonne increase in the FoB price of urea from Omifco. Such an increase in the gas price could increase India’s fertilizer subsidy bill by as much as Rs450 crore a year if urea continues to be sold at the current market price in India. The country’s fertilizer subsidy bill in 2011-12 stood at Rs90000 crore.
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