New Delhi: State-owned urea maker Brahmaputra Valley Fertilizer Corp. Ltd (BVFCL) may be shuttered soon as it struggles with Rs 700 crore of accumulated debt, said an official with direct knowledge of the matter.
The company may be closed despite intermittently posting cash profits over the past few quarters, said the official. The company is finding it difficult to pay principal and interest on its debt, he said on condition of anonymity.
BVFCL has been in financial turmoil since it was revived in 2002, said another senior official, who also did not want to be identified.
BVFCL chairman and managing director R. Singh denied any knowledge of the company’s likely closure. He admitted that the company’s finances are grim.
Headquartered at Namrup in Dibrugarh, Assam, BVFCL has piled up Rs 700 crore of debt since 1998. While the company made a cash profit of Rs 40 crore in 2010-11, the interest payment on the loans alone was Rs 70 crore, Singh said.
BVFCL currently produces 390,000 tonnes of urea annually. While the company has an installed capacity of 520,000 tonnes, one of its three units has been closed because of the non-availability of gas to fuel it. BVFCL has a workforce of 1,050 people.
The company has sent a proposal for its revival to the the department of fertilizers (DoF), which is expected to forward it to the Board for Reconstruction of Public Sector Enterprises (BRPSE), Singh added.
Officials, however, say that financial issues are just a part of the problem at BVFCL.
The company is short staffed, with several senior-level positions vacant. It has just one functioning director on its board at present, with all other director-level positions unfilled. No replacement has been found yet for Singh, who retires on 30 November, officials said.
“Since it is a loss-making company, the government does not offer salaries at par with other fertilizer companies it owns, so no good candidates are willing to come forward,” said a third government official. “Moreover, Namrup is an insurgency-prone area, so few people want to go there,” he added.
The government presently offers Rs 70,000 a month in compensation to a director at BVFCL, nearly one-third of the sum offered to directors of other fertilizer companies, Singh said.
Still, despite the company’s losses, the government may find it difficult to close the company, said the second official.
“The company provides employment to more than a thousand people in a politically unstable region. It would not be easy for the government to close it down,” he said. “Moreover, the cost at which BVFCL produces urea is less than that of imported urea.”
Tarun Surana, an analyst with Mumbai-based Sunidhi Securities and Finance Ltd, said BVFCL produces cheap urea because it has access to cheaper gas than most other units given that it is based in the mineral-rich North-East. Gas accounts for 70% of the cost of production of urea.
India consumes 29-30 million tonnes (mt) of urea every year, out of which 21-22 mt is domestically produced while the rest is imported. The current cost of imported urea is $475-500 per tonne.
The government has been trying to revive eight other urea plants in the country that have been shut down in the last few years.
On 5 August, Mint had reported that the cabinet had approved a revival package for the closed units. Three of these are located at Sindri in Jharkhand, Talcher in Orissa and Ramagundum in Andhra Pradesh.