Pooling of gas prices-II: Will pooling help or hamper power and fertilizer companies?

Power and fertilizer companies are unlikely to be happy with the pool pricing mechanism. This is because priority allocation of low priced gas is earmarked exclusively for them while more expensive domestic gas or imported LNG is reserved for other sectors of the economy.

• The power ministry representative in the meeting highlighted that fact that India followed a merit-based tariff mechanism and in this context any fuel used by a power company had to be competitive. Even imported coal based plants were facing trouble because of cost of power was turning out to be too expensive. He said that gas based power would have to be competitive in order to generate electricity in the country.
• Surprising however, the representative of the Department of Fertilizers supported the proposal for a pooled price mechanism. He said that urea demand in the country would go up to 30 MMT by 2011-12 whereas the production capacity currently existing was just 21 MMT. If India were to import urea on a large scale, it would be vulnerable to the international cartel, which would jack prices. In this context, new urea capacities would have to come up and this could only happen if prices were pooled.
• But the point remains that urea companies would soon have to operate under a competitive Import Parity Pricing regime and they would only be competitive if the price of gas, which is the main feedstock, is low enough for Indian urea prices to compete with international prices. Whether the pool price mechanism would allow for this remains a moot point.
• The joint secretary in the Cabinet Secretariat, Govind Mohan said that he was not entirely convinced that price pooling would be an effective solution. He was of the view that sensitivity analysis of various sectors at different gas prices would determine its acceptability.