OREANDA-NEWS. September 5, 2011. The delay in building gas pipelines in south India by Reliance Gas Transportation Infrastructure Ltd (RGTIL) is likely to put Southern Petrochemical Industries Corporation Ltd (Spic) and Madras Fertilizers Ltd (MFL) in a tight spot once urea price is decontrolled later this fiscal. This is because these companies’ scheduled switchover from naphtha to gas as feedstock would have to be deferred as a result of the delay, while competitors relying on public sector GAIL India for gas connectivity would receive supplies by 2012-13.

Urea price decontrol was recommended by a group of ministers led by the finance minister last month. RGTIL’s pipeline construction is not keeping pace with the 2012-13 deadline even as Reliance Industries' gas production has unexpectedly declined. The government has also not allocated gas to units that are yet not ready to use it. Till the time of going to the press, RGTIL could not offer any comments on a detailed questionnaire sent to the company last week.

Spic’s urea production unit in Tutucorin and MFL’s unit in Chennai were relying on Reliance for gas pipeline connectivity so that they could shift to gas from naphtha by 2012, the original deadline for completion of pipelines. “All other urea producers banking on GAIL India for pipelines would comfortably get connectivity by 2012-2013 and would be able to switch to natural gas from less efficient feedstock such as naphtha, fuel oil and low sulphur heavy stock (LSHS),” said a person privy to the government's deliberations on urea price decontrol.

For example, pipeline building is almost complete for the KK Birla group fertiliser company Zuari Industries Ltd’s Goa plant. So is Gujarat State Fertilizer Corporation’s Baroda unit. The two units of state owned National Fertilizers Ltd (NFL) in Punjab and Haryana will also get pipeline connectivity by 2012-13, the person, who asked not to be named, told FE.

Chemicals and fertilisers minister M K Alagiri is opposing decontrol of urea price before all companies could switch over to the more efficient natural gas since pricing freedom before gas is made available to all could lead to either profiteering or predatory pricing by those who get access to low cost gas, driving the others out of business.

RGTIL has been authorised to build new pipelines in the South from Kakinada to Chennai, Chennai to Tuticorin and Chennai to Bangalore. It has also been authorised to build a pipeline from Howrah to Kakinada.

The company is now acquiring right of user (in land) and other statutory approvals for the pipelines. RGTIL had in 2009 commissioned the East-West Pipeline. A group of ministers led by finance minister Pranab Mukherjee had on August 5 recommended giving pricing freedom to the companies immediately with an understanding that price will not be raised by more than 10% in the first year of decontrol. Despite the price decontrol, there would still be some subsidy on urea (nutrient-based) depending on the state's paying capacity.