Financial Daily from THE HINDU group of publications
Saturday, May 18, 2002
Industry & Economy - Fertilisers
`Arbitrary' domestic pricing: Urea units look abroad for cheaper naphtha
NEW DELHI, May 17
IN a bid to counter `arbitrary and ad hoc' pricing of feedstock by domestic petroleum refineries, leading naphtha-based urea units are planning to join hands and float a composite international tender for the purchase of naphtha at `competitive' rates.
"We plan to float the tender in the next 10-15 days. The exact quantum of purchase will be decided once we work out the actual naphtha requirement of individual units,'' Mr U.S. Awasthi, Managing Director, Indian Farmers Fertiliser Cooperative (Iffco), told Business Line.
The proposed tender will be floated by the Fertiliser Association of India (FAI), which has been in the business of global procurement of phosphoric acid and ammonia on behalf of domestic di-ammonium phosphate (DAP) producers.
FAI had, only on April 25, concluded a deal with an international supply cartel for purchase of 7.65 lakh tonnes (l.t) of phosphoric acid during 2002-03 at $ 341.5 per tonne - around $ 30 per tonne lower than the normal rates quoted - along with a 150-day credit line.
"We had similarly floated a tender for purchase of 10 l.t last year. The rates quoted by us today act as an international benchmark. Given our experience in phosphoric acid,we feel confident of extending it to naphtha and furnace oil as well,'' FAI officials said, while clarifying that the proposed tender would not exclude domestic refiners.
Mr Awasthi said that the basic purpose of the tender was to put an end to the current `arbitrary, non-transparent and ad hoc' pricing of feedstock resorted to by petroleum companies and increase the collective bargaining power of the urea industry.
"They are giving us all kinds of reasons for increasing naphtha prices, without any precise quantification. The tender will at least allow us to gauge whether cheaper supply sources exist,'' he added.
Currently, roughly 50 l.t out of the country's total urea production of 190-200 l.t is accounted for by naphtha-based plants such as Iffco's Phulpur I and II, Chambal Fertilisers' Gadepan II, SPIC's Tuticorin, Zuari's Goa, Shriram Fertiliser's Kota, Duncan Industries' Kanpur, MCFL's Mangalore, Madras Fertilisers' Manali and FACT's Kochi.
Assuming an average naphtha consumption of 0.6 tonnes for producing one tonne of urea, the industry's annual requirement of this feedstock comes to around 30 l.t. If one adds to this the consumption by gas-based plants using naphtha/furnace oil as supplementary feedstock, the total naphtha requirement for urea units would be almost 35 l.t.
Although domestic naphtha prices have been fully decontrolled since April 1, 1998, the Centre had put in place an arrangement to make available the feedstock to urea companies on an `import parity price' basis.
Under this, naphtha was supplied to individual units based on the prevailing c.i.f. (cost, insurance, freight) price in the nearest designated port. The final price was determined by adding to the c.i.f. price, port handling charges, notional rail freight to the concerned unit and local taxes. The refiners notified unit-wise feedstock prices every fortnight, factoring in average c.i.f prices prevailing in the preceding 15 days. However, this `formula-based' arrangement has been dispensed with since April 1, 2002, following the formal dismantling of the Administered Pricing Mechanism for petroleum products.
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