Business
New lower gas price to cut urea subsidy by Rs.930 crore: Report
New Delhi, April 2
The eight percent cut in
the new domestic natural gas price to $4.66 a unit will help bring down
the urea subsidy bill by Rs.930 crore, India Ratings & Research
(Ind-Ra) said on Thursday.
The cut in gas prices from $5.05 per
million British thermal unit to $4.66 from April 1 reflects the reduced
international hub prices.
"Natural gas, which forms a majority of
the raw material cost for urea production in India, is a pass through
for gas based urea producers up to their respective reassessed
capacities. Around 80 percent of indigenous urea is produced using
domestic gas," Ind-Ra said in a report.
"The indigenous urea subsidy bill will be arrested marginally by Rs.930 crore in FY 2016 pursuant," it added.
"Factoring
in the November 2014 increase in gas prices, the recent downward
revision will partly offset, albeit marginally, the subsidy burden by
2.4 percent. Nevertheless, urea subsidy requirements will continue to
remain high despite the proposed reduction, as gas prices remain higher
than the FY14 level of $4.2," it said.
The government has
increased the subsidy allocation for indigenous urea to Rs.36,000 crore
in the financial year just ended, from Rs.26,500 crore in fiscal
2013-14, and revised it to Rs.38,200 crore for fiscal 2015-16.
"Increased
subsidy requirements are partially due to the increase in domestic gas
prices from FY 2014 levels as well as a marginal increase in the use of
costly imported liquefied natural gas (LNG)," Ind-Ra said.