The hike in domestic natural gas price is likely to put an extra fertiliser subsidy burden of Rs 8,300 crore on the exchequer and will hit operating profits of urea companies, a rating agency said.
The government recently approved hike in domestic natural gas price from $4.2 per mmbtu (million metric British thermal unit) to $8.4 per mmbtu effective from April, 2014.
“The revision in gas prices could lead to an additional burden of Rs 83 billion (Rs 8,300 crore) on the government towards higher subsidy outgo,” said India Ratings & Research, a part of Fitch ratings group.
That apart, the operating profits of urea manufacturing companies would also decline sharply by 12 per cent from the current level of 46 per cent with the implementation of the hike in gas rates, it said.
Natural gas comprises more than 80 per cent of the production cost of urea. Presently, gas prices are pass— through in the urea subsidy till the cut—off quantity.
However, a majority of the profits for urea manufacturers comes from urea sales above the cut—off quantity, it added.
Major producers of urea in the country are IFFCO, Rashtriya Chemicals and Fertilisers (RCF) and Tata Chemicals.
The country produces about 22 million tonnes of the key nitrogenous fertilisers annually, but consumes around 30—32 million tonnes. The gap is met through imports.