The Oman government has decided to increase the price of natural gas it sells to Oman India Fertiliser Company's (OMIFCO) urea manufacturing facility in Sur. It also added an annual escalation clause, Indian media has reported. However, India is unlikely to drag the sultanate into international arbitration for breach of a signed contract.
According to The Indian Express, the sultanate which had previously proposed to raise rates of gas sold to the fertiliser unit to US$3 per mn British thermal unit (Btu) from the present price of 77 cents, has since revised its offer to US$1.5 per mn Btu. The sultanate has also set a rider that gas price would be hiked by 50 cents every year till it reaches US$3 per mn Btu.
Oman had contracted to selling gas to the plant at 77 cents for 15 years beginning 2005 but mid-way decided to hike rates to US$3 from January 1, 2012 citing firming up of prices in global market.
The Indian cabinet, which may consider the proposal as early as this week, will take the final decision on whether India should drag Oman into an arbitration process for breach of the signed
contract, according to an official at India's fertiliser ministry.
Meanwhile, the Indian fertiliser ministry has proposed to the cabinet that the price increase be accepted as it is still much lower than the global rates of natural gas according to The Economic Times. "We have sent a proposal to the cabinet that the hike in gas price be accepted," a ministry official said.
A PTI news report quoted long term gas supplies in the international market at about US$18 per mn Btu. Indian officials believe that Oman may stop supply of gas to the plant if an arbitration procedure is initiated. OMIFCO, a joint venture firm between Oman's state-owned Oman Oil Co (OCC) and Indian co-operative firms KRIBHCO and IFFCO, produces about 2mn tonnes of urea a year at its Sur plant for export to India.
Earlier in February, B D Sinha, chairman of OMIFCO, had told Muscat Daily that Oman's decision to increase the gas price would 'marginally' increase the cost of urea imports from the sultanate to India. Sinha was in Oman for the inauguration of a new bagging unit at the Sur plant.
He said, Due to escalation in gas prices, the cost of imports will go up marginally, but urea imports from Oman will still be substantially cheaper for India than from any other country.
© Muscat Daily 2012
