"KG D6 fields did not supply enough natural gas; Centre failed to develop new units"

The Reliance Industries Limited (RIL)-owned KG D6 fields failed to provide the required amount of natural gas to fertilizer units in the country, which resulted in thousands of crores of extra subsidy burden on the government on account of forced fertilizer imports, the Comptroller and Auditor General (CAG) has said.

It has also expressed serious concern over the failure of the UPA II government to develop, expand or revamp the existing fertilizer units in the country and also set up new greenfield projects during the last nine years, leading to shortfall in domestic production which resulted in an outgo of Rs.79,743 crore by way of subsidy.

“Non-availability of natural gas has been a major constraint in further addition of indigenous production of urea. The government could not provide assured supply of gas on a long-term basis while pipeline connectivity remained poor, crucial to investment and modernisation of plants in fertilizer sector. Hence the objective of enhancement of production capacity, self-sufficiency in urea production and savings on subsidy could not be achieved. Therefore, the agriculture sector remained dependent on imports to the extent of 475.29 lakh tonnes during the last nine years due to shortfall in domestic production which resulted in a subsidy outgo of Rs. 79,743 crore. Had the envisaged production enhancement projects materialised, subsidy savings on domestic production of urea by using LNG/RLNG would have been Rs.8,159 crore during 2011-12 in lieu of import of 78.34 lakh tonne of urea,” the draft CAG report on Performance Audit on ‘Supply and Pricing of Natural Gas’ has pointed out.

The CAG has put these and other such queries to the Fertilizer Ministry in the half-margin on ‘Non-implementation of urea production enhancement due to lack of firm availability of natural gas,’ which has been forwarded by the office of the Principal Director of Commercial Audit and Ex-Officio Member Audit Board-II (Oil Wing). It has sought the response of the Fertilizer Ministry on these issues.

The CAG note points out that government had formulated a pricing policy in 2004 and new investment policies in 2008 and 2012 for attracting additional investments in the urea sector. It was envisaged in the 10th Plan to increase the urea production capacity through revamp on existing gas-based urea plants, savings on cost of production by converting existing naphtha/ fuel oil/lower sulphur heavy stock base urea plants to natural gas and LNG and setting up new plants and expansion of existing ones during 2002-07. It was also stated that government had planned to eliminate the staggering demand-supply gap in urea by revamp of the existing 17 plants, conversion of nine from naphtha, four from fuel oil and low sulphur heavy stock feedstock base to natural gas and setting up of four new units within three years from the date of implementation of the 11th Plan (2007-12).

In September 2008, the government announced a new investment policy offering import parity price to urea plants for dispensation of the additional urea produced by fertilizer plants under this policy.

Target missed

However, CAG has pointed out that the envisaged target of conversion of all existing on-gas plants to natural gas based ones within three years from 2007-08 to 2009-10 was not achieved. Had these plants been converted to natural gas, savings on cost of production of urea worked out to Rs. 4,594 crore per annum. Against the target of enhancement of 27.23 lakh metric tonne per annum (lmtpa) by revamp of 17 units, the achievement was only 3.30 lmtpa up to 2011-12. This led to payment of excess subsidy on imported urea as it is more than the subsidy paid on gas-based production.

“In the absence of commitment from the Petroleum Ministry on long-term allocation of gas at a particular price, the investments proposed by the companies could not fructify and the expected capacity addition of 100 lmtpa through expansion and greenfield projects did not materialise. Thus, the domestic production capacity of urea plants remained stagnant since last 10 years as the policies notified by the government were not successful in attracting investments in the urea sector,” CAG has stated in the draft note.

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