Fertiliser department to pay Rs 416 crore urea subsidy to offset past gas marketing fee

After a decade of legal wrangling, urea manufacturers are likely to get Rs 416 crore as a subsidy to offset the marketing margin they paid for Reliance Industries’ natural gas supplied from the KG-D6 field between May 1, 2009, and November 17, 2015.

The Department of Fertilisers (DoF) in March 2023 agreed that the marketing fee paid by urea producers on KG-D6 natural gas was "recognisable under the subsidy calculation" and allowed for reimbursement for supplies since May 2009.

However, DoF has fixed the margin recompense for May 2009–November 2015 at Rs 200 per 1,000 standard cubic metres (equal to Rs 5.04 per million British thermal units) instead of Rs 327.66 per MSCM (equal to Rs. 5.40 per mBtu) that Reliance charged from urea producers.

"Marketing margin up to Rs 200 per MSCM or actual marketing margin paid/charged, whichever is less, on any domestic gas being produced within the country and supplied to urea producers may be considered for approval for the period 1 May 2009 to 17 November 2015," the DoF conveyed to the Petroleum Ministry in March 2023.

There are 18 urea units that took gas from the KG-D6 basin from 2009–10 to 2014–15. As per the calculation done by the Fertiliser Industry Coordination Committee, the total marketing margin payable @ Rs 200 per MSCM from May 2009 to November 17, 2015, comes to Rs 416.16 crore.

On November 18, 2015, the Cabinet approved a marketing margin of up to Rs 200 per MSCM on domestic gas supplied to urea and LPG producers, but this fee was reimbursable on gas supplies starting November 18, 2015.

The Petroleum Ministry has to incorporate the DoF’s recommendation and submit it to the Cabinet for modification of their November 2015 order for a new "effective date".

The Fertiliser Association of India, which initiated the legal action against the government in May 2012, claims it is owed Rs 600 crore. It also wants nine per cent interest per annum from the date of accrual of the subsidy payment till the date of actual subsidy payment. However, sources said the interest claim has been declined by DoF.

In December 2013, the Petroleum Ministry gave freedom to gas retailers, including Reliance and GAIL (India) Ltd, to fix the marketing margin they wanted to charge on the sale of gas to consumers.

Later, DoF requested that marketing fees not be left to negotiation between buyer and seller as allowing higher input price to gas suppliers raises urea prices and inflates the government subsidy.

In November 2015, it was decided that marketing margin would be regulated for supplies to urea and LPG producers and that it would be charged in rupees per MSCM to insulate consumers from currency volatility.

Marketing margin is a charge levied for costs incurred on account of coordination between producers and consumers, reconciliation, gas inventory management, risks in upstream contracts, bad debt, litigation, etc.