Cabinet clears Oman proposal for gas price hike

The union cabinet is understood to have cleared Oman's proposal to increase the price of gas being supplied to an Indian fertiliser plant in the Gulf nation to $1.5 per million metric British thermal unit (mmBtu), a move that would ensure uninterrupted supply of urea to the Indian market.

With the government's approval, the move to challenge the hike at the International Tribunal in London would be withdrawn.

Official sources said the cabinet cleared the proposal to accept the hike in gas price supplied by Oman to the Oman India Fertilizer Company (OMIFCO) plant in Sur (Oman) to $1.5 per mmBtu with an annual increase of $0.5 mmBtu.

The government accepted the Oman government condition on increasing the gas prices by $0.5 per mmBtu every year up to $3 per mmBtu.

The fertiliser ministry had moved the proposal since it required cabinet approval for a change in the agreement between the two countries.
Oman had contracted sale of gas to the plant at $0.77 per mmBtu for 15 years beginning 2005 but mid-way decided to hike rates to $3 per mmBtu from 1 January 2012, citing increase of prices in the global market.

Oman India Fertilizer Company (OMIFCO) is a joint venture of Oman's state-owned Oman Oil Co (OCC) and Indian co-operative firms KRIBHCO and IFFCO. The company produces about 2MT of urea every year at Sur for exports to India. IFFCO and KRIBHCO each hold a 25 per cent stake in OMIFCO, with the Oman Oil Company holding the balance.

The ministry favoured accepting the hike as even at $3 per mmBtu, the gas supplied by Oman worked out cheaper than alternative fuel sources.

Long-term gas supplies in the international market can be secured at $18 per mmBtu. OMIFCO ships around 2MT of urea, the country's entire production, to India under an agreement between the two governments.