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Saturday, January 28, 2012

Oman Gas hike to Oman India Fertiliser Co. SAOC (Omifco)

Aman Malik,

The government of Oman has refused to roll back its decision to raise by four times the price at which it sells gas to Oman India Fertiliser Co. SAOC (Omifco), according to people familiar with the development.

Omifco ships nearly all of the urea it manufactures to India under an agreement the country has with the Oman government. The hike in gas prices will raise the cost of imports from Oman.
Negotiations between the two countries in the second week of January made little headway, senior Indian government officials said .

“We have again written to Oman on this issue, but we do not expect a positive response from them,” said an official who declined to be named. “The Omani establishment no longer wants to sell cheap gas.”

Increasing the price of gas to $3 per mBtu will translate into a $60 per tonne rise in the price of urea imported under this arrangement. It would also mean that the Indian government’s subsidy bill would go up by about Rs.450 crore.

Oman has already raised the gas price from 1 January, the official cited above said.

Oman’s ambassador to India could not be reached for comment as he is out of the country.

Mint had first reported on 9 November that Oman wants to renegotiate its 2005 contract with India and increase the price of gas from $0.77 per million British thermal unit (mBtu) to $3 per mBtu. Oman had raised this demand in a letter in June. Under the contract, the rates were fixed for 15 years.
Following this, on 10 November, Times of Oman newspaper, quoting an unnamed Omani government official, said the country was trying to “substantially increase the price of natural gas to industries using gas as feedstock.”

India does have the option of entering into arbitration in London, but does not want to exercise it as doing so “might impact the diplomatic relations between the two countries”, said the Indian official cited earlier.

Indian Farmers Fertilizer Cooperative Ltd (Iffco) and Krishak Bharati Cooperative Ltd own a 25% stake each in Omifco. Oman government-owned Oman Oil Co. SAOC owns the rest.

U.S. Awasthi, managing director of Iffco, confirmed that Oman had refused to back down on the issue.

Omifco produces 1.5 million tonnes (mt) of urea every year.

The freight on-board price of urea supplied by Omifco is $150 a tonne, against the prevailing international open market price of $475-500 a tonne. The Omifco facility went on steam in May 2005.

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