The Hindu Business Line : Supplies on credit to FACT: KRL reluctant

THE attempt of the Department of Fertilisers to get petro-product supplies on credit from Kochi Refineries Ltd (KRL) to FACT has failed to yield results.

In a reply to the Ministry of Petroleum, which had pursued the matter, KRL has stated that FACT has ceased to be a credit-worthy customer after the `deregulation' of the sector.

KRL's letter to the Ministry, carried on the Web site of indianfertilizer.com, states that the current bad monsoon as well as the lack of competitiveness of naphtha-based urea production are further reasons for their caution. Citing FACT's moves to get referred to the Board for Industrial and Financial Reconstruction, KRL has refused to extend even a month's credit unless FACT manages to get the credit counter-guaranteed by the banks or the Government.

KRL's letter stated that though FACT was one of its favoured customers, there was also a commercial requirement of evaluating the financial strength of the buyer to ensure that the value of the products transferred to them "is retrievable by us. In this regard we have been keeping a constant watch on the financial health of the company so that heavy burden of write-off does not fall on us at a later date."

KRL stated that it was convinced that of late the cash stream that was generated by FACT was not offering required comfort as a creditor in relation to its volume of operation. Post-deregulation there was erosion of net worth of FACT "and that has caused us to re-look at the credit to be offered to them".

As in the previous years, the letter stated, current year also the performance of monsoon in Kerala was not encouraging and hence there was likelihood for reduction in the sales of FACT. Besides, like in the previous year, FACT may be forced to extend credit to its customers - mostly small dealers doing business with farmers.

The letter pointed out that the price of petroleum products were increasing and the cost of fertilisers with naphtha-based operation may not be competitive compared to natural gas, thereby making operation of FACT more vulnerable. Under the situation and also considering the fact that FACT had already taken a shareholders meeting for getting referred to BIFR, it would be "extremely unwise for KRL to extend even one month's credit. However, we will not abstain from further credit period, if proper guarantees are offered to us by third parties like banks, GoI etc; for which FACT may take the lead to obtain".

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