Urea industry becoming sick with every passing day: Experts

Reacting to the development Satish Chander, DG, Fertiliser Association of India, said the Rs 9,000-crore subsidy will only suffice for the on-account payment of the companies up to mid-November and the remaining four-and-a-half months will see dearth of funds.

“If you look at the industry as a whole, we will still be short by Rs 25,000 crore… and this (Rs 9,000-crore aid) is only for on account payment. We still haven’t got the balance payments yet, which is pending since 14 months (November 2012).

Speaking to CNBC-TV 18’s Ekta Batra and Anuj Singhal, Chander said the urea industry is becoming sick with every passing day. “We need more funds to save and protect the urea industry and the domestic production of urea needs to be protected,” he said adding that various costs in industry have not been changed for over 10 years.

A meeting of group of ministers (GoM) headed by Sharad Pawar on fertiliser sector has been postponed to January 30. GoM meet will consider relief in the form of fixed subsidies and vintage allowances to the fertiliser industry.

Below is the interview of Satish Chander and RG Rajan with Anuj Singhal and Ekta Batra on CNBC-TV18.

Q: If you could tell us is this Rs 9,000 crore additional subsidy or is it just the money coming in from the subsidy which was earlier approved?

Rajan: No, it is additional money, special banking arrangement of Rs 9,000 crore.

Q: Have the companies received that money already now?

Rajan: No, we will receive in next one week.

Q: Can you just detail how much Rashtriya Chemicals and Fertilizers (RCF) requires in terms of subsidy?

Rajan: Our total outstanding as of now is Rs 1,800 crore and in this arrangement we will get around Rs 500 crore.

Q: So you are expecting the remaining to be spilled over into FY15?

Rajan: No, I think in the forthcoming session of Parliament there will be a further supplementary grant and we expect some additional subsidy provision for the industry.

Q: How difficult is your working capital position at this point in time because of the lack of subsidy?

Rajan: Definitely our borrowing and interest costs have gone up and this is a relief for us partially. We hope that we get additional funds so that our borrowings can come down.

Q: What is your call? After this Rs 9,000 crore do you think that would be enough for the sector and as Ekta also pointed out in terms of working capital requirement of the companies what would be the situation currently?

Chander: If we look at the industry as a whole we will still be short by Rs 25,000 crore. If we look month-wise, this Rs 9,000-crore special banking arrangement which is coming will only suffice for on account payment of the companies up to middle of November. Then for the remaining four and half months there is no money.

Number two, this is only on account payment. We have not been paid our balance payment since November 2012. So for the last 14 months our balance payment, as you know we are paid in two instalments, one is on account payment, freight subsidy and then the balance. This balance amount which varies from 5-10 to 15 percent of the companies is pending since last 14 months. Even on account payment there is no money for next 4.5 months. Then we have freight bills. Some of them are pending since 2008 and 2009.

So the total outstanding even after the special banking arrangement we need at least another Rs 25,000 crore to come into some semblance of timely payment. This is besides all other problems which the industry is facing. Our prices have not been revised. Urea industry is almost becoming a sick industry. So, all those issues are apart. This is simply as per the present policies. Whatever is payable by the government, they are not able to pay us. It is a very sad situation.

Q: Would you agree with Mr Chander’s point that the urea industry is in need of maybe something more aggressive, possibly a package from the government because there is a possibility that the urea industry is turning into a sick industry at this point?

Rajan: Yes it is vey much required. The fixed cost for the urea units need to be revised and for the old plants there has to be some special allowance. The industry is looking to the government for revision in the fixed costs of urea plants.

Q: We do understand that there was supposed to be a meeting which was expected to be headed by Mr Sharad Pawar with regards to the urea industry and possible package on that. Can you just give us what the update on this meeting is and when it does happen what will the agenda be?

Chander: I have been coming on your channels for the last three years where we have been talking of the nutrient-based subsidy (NBS) for urea. In spite of all optimism and all hope nothing has happened. Even the present policy which has lapsed in March 2010 has not been updated. Our costs have not been updated since 2002 and 2003.

For example, conversion cost etc, by which we convert feed stock into urea is based upon the costs which are 14 years old. There is a little hope, some relief to the industry that there is a proposal to increase fixed cost by Rs 350 subject to a minimum of Rs 2,300 and our plants are aging. We have as old as 40 years old plants.

None of our plant is less than 20 years. So we have been pleading with the government to run these plants efficiently and ensure safety, because these plants are giving urea at a cost which is much lower than at what the government imports from outside. So this production has to be protected. We are telling government at least give us Rs 500 per tonne so that we are able to maintain the efficiency and security of these plants. That proposal what is known as vintage allowance, we hope these two things should come and the meeting is on 30th of this month headed by Mr Sharad Pawar who is the chairman of this group of ministers.