NEW DELHI: The government has accepted the proposal seeking hike in prices of gas supplied by Oman to an Indian fertiliser plant in the Gulf nation to $ 1.5 per mmBtu for this year, a move that will ensure uninterrupted supply of urea to the Indian market.
The government’s approving the hike in gas prices means that it has dropped the earlier proposal of challenging the move by Oman at the International Tribunal in London.
“The Cabinet, yesterday, cleared the proposal to accept the hike in gas price supplied by Oman to the OMIFCO plant in Sur (Oman) to $ 1.5 per mmBtu with an annual increase of $ 0.5 mmBtu,” sources said.
The Cabinet has accepted Oman government’s condition that it would increase gas prices by $ 0.5 per mmBtu every year up to $ 3 per mmBtu, sources added.
The proposal was moved by the Fertiliser Ministry as it required Cabinet’s approval for a change in the agreement between the two countries. This also states that government has dropped the idea of challenging the rise in gas prices at the International Tribunal in London, they said.
Oman had contracted to sell gas to the plant at $ 0.77 per million British thermal unit for 15 years beginning 2005 but mid-way decided to hike rates to $ 3 per mmBtu (million British thermal units) from January 1, 2012 citing firming up of prices in global market.
Oman India Fertiliser Company (OMIFCO), a joint venture firm between Oman’s state-owned Oman Oil Co (OCC) and Indian co-operative firms KRIBHCO and IFFCO, produces about 2 million tonne urea a year at Sur for exports toIndia.
IFFCO and KRIBHCO holds a stake of 25 per cent each in OMIFCO, while the rest is with Oman Oil Company.
According to the ministry’s proposal, after the price of gas touches $ 3 per mmbtu, the annual escalation in the fuel rates would be equivalent to yearly US inflation rate or 3 per cent, whichever is lower.
The ministry was in favour of accepting the hike because even at $ 3 per mmBtu, the gas supplied by Oman is cheaper than alternative fuel sources. Long term gas supplies in the international market are no less than $ 18 per mmBtu.
OMIFCO ships around two million tonne urea, which is its entire production, to India under an agreement the country has with the Oman government.