BackDoF seeks `12,000 cr for fertilizer firms
The department says severe liquidity crisis is affecting the fertilizer industry
Premium(HT)
New Delhi: The department of fertilizers (DoF) has sought for 12,000 crore to be made available to fertilizer companies through a special banking arrangement (SBA) to make up for long-due subsidy payments to be made to these firms.
“Immediate approval of SBA for ₹ 12,000 crore may please be agreed to address the severe liquidity crisis affecting the fertilizer industry," the department said in a letter dated 9 September and issued on 10 September to the secretary, department of expenditure, ministry of finance. Mint has reviewed a copy.
In an SBA, companies are offered loans against subsidy receivables over and above their normal working capital limits, against sovereign guarantee. This was exercised last year as well with State Bank of India (SBI) being the leading lender.
The DoF’s letter comes after Fertilizer Association of India (FAI), an industry lobby, met the department’s secretary recently to discuss the impact of pending subsidy bills on domestic urea manufacturers.
The lobby has filed a case in Delhi high court against the government for non-payment of fertilizer subsidies, also seeking interest payments on the dues. The next hearing is on 25 September.
The total requirement of additional funds is around ₹ 35,000 crore, as per the DoF’s note. It will ask for the balance amount in the second supplementary grants to be presented in the winter session of Parliament, said a DoF official on condition of anonymity. “The urgent requirement of funds can now be fulfilled only via SBA as no funds were asked in the first supplementary during the monsoon session, and second supplementary will come only in December. It’s far away," the official said.
Funds for imported phosphate and potash fertilizers, which account for the maximum subsidy outlay, have been exhausted, leaving no money for claims from August onward, according to the DoF letter. The government, though, has sufficient funds for imported urea, about ₹ 19,000 crore, this being its top priority, according to the letter.
Tata Chemicals Ltd incurred around ₹ 40 crore of additional losses in fiscal year 2013 due to non-payment of subsidies by the government. At the end of the June quarter, the company estimated its loss from this at around ₹ 16 crore. Tata Chemicals reported a 30% fall in profit for the June quarter.
“Subsidy receivable remains a big problem," R. Mukundan, managing director of Tata Chemicals, told reporters at a press conference on 5 August. “The funds allocated for urea and phosphatic fertilizers are getting exhausted."
Subsidy payments of about ₹ 1,150 crore were due to Tata Chemicals as of 30 June. For the entire fertilizer industry, about ₹ 30,000 crore of subsidies were due as of 31 March.
For Indian Farmers Fertilizer Cooperative Ltd, the world’s largest fertilizer cooperative, outstanding dues as on 1 September were around ₹ 3,500 crore, managing director U.S. Awasthi said.
“Manufacturing cost of domestic urea can lie anywhere in the range of ₹ 11,000-16,000 per tonne depending on factors like type of feedstock, gas-mix, etc. The effective subsidy comes around ₹ 6,000-11,000," said Rohan Gupta, an analyst with Emkay Global Financial, a Mumbai-based brokerage.
“Non-payment of subsidies from the government will increase the working capital requirements for fertilizer companies, which in turn will lead to higher interest expense," said another analyst with a Mumbai-based domestic brokerage. He didn’t want to be named.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
