The Hindu Business Line : FACT crisis likely to deepen as Kerala Govt turns down proposals

THE crisis in Fertilisers and Chemicals Travancore Ltd (FACT) is likely to aggravate following the State Government's reported decision not to accede to the demands of the premier fertiliser unit as part of its revival proposal.

The State Government is understood to have turned down the demand for reduction in sales tax, entry tax and power tariff. However, it had offered to reduce the rental from Rs 2.5 crore to Rs 1.25 crore.

To sustain continuous operation, support from the State Government by way of exemption/ reduction in the taxes, especially in the wake of mounting naphtha prices, is inevitable, highly placed company sources told Business Line on Monday.

There is an embargo on the credit limit and hence the available credit facility had become insufficient to procure the required quantity of raw materials because of its high price, which goes up further when 16.5 per cent sales tax and 30 per cent entry tax are added, they claimed.

They said that if company could survive till the proposed LNG terminal becomes operational then the situation would change as raw material would beavailable at low cost.

Till that time, the State and Central governments will have to be considerate towards this ailing company, they said.

According to them, the intervention of Department of Fertilisers is needed at this juncture. The company was making profits for 15 years till 1999 and in terms of capacity utilisation it was using more than 100 per cent. As regards energy efficiency, it is one of the best in the country. Its maximum turnover had touched Rs 1,800 crore.

They attributed the downfall and losses to non-realisation of production cost from sales and subsidy support due to steep increase in the cost of petroleum inputs and raw materials and glut in the caprolactum market.

Added to this were the heavy burden of interest and depreciation on capital/plan loans and acute infrastructural bottlenecks to import petroleum raw materials.

Excessive taxation by the State Government coupled with high power tariff raised production cost, they said. Inadequate modernisation of existing plants was also another impediment. Now urea production also remains suspended after the new pricing policy, they said.

The company had already reduced workforce from 9,500 to 4,500, while a voluntary retirement scheme for 1,000 employees is under way.

Already, the net worth of the company has eroded. However, it has taken concerted efforts to contain losses by integrating production units and management, intensifying marketing efforts and dues collection, reduce exposure to loss-making activities and by obtaining best bargain for bulk consumption items.

They said that the company's survival depended on an immediate intervention by the Union Fertiliser Minister to get the revival proposal accepted by the Union Finance Ministry and the Cabinet Committee on Economic Affairs.

A decision from the Union Government is yet to emerge. The State Government's attitude would cast a shadow now, they added.

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