The Hindu Business Line : MFL reconstruction scheme recommended to Govt

THE Board for Reconstruction of Public Sector Enterprises (BRPSE) has recommended Madras Fertilizers's (MFL) reconstruction programme to the Government, according to the information provided to the stock exchange by MFL.

The board has recommended an enhancement in outlier benefit of 70 per cent under the new pricing scheme for urea against the 50 per cent MFL was allowed for 2003-04 and 2004-05. This will mean that the company's higher cost of production of urea, compared to the other fertiliser companies in its group (pre-1992 naphtha-based units), will be taken into account for calculating urea subsidy under the group retention pricing.

The group retention pricing for calculating cost of production of urea is based on production capacity, variable cost, conversion cost, depreciation and capital-related charges. The company finds itself the odd one out (the outlier) in its group because of the heavy investments it committed in the mid-1990s though it was better-than-average in terms of efficiency. Its production costs were higher than average and but as an "outlier" only 50 per cent of the higher cost was considered for computing its subsidy. The company will now be able to cut its losses.

Thanks to the recommendation, MFL, which reported a loss in 2003-04, will now report a profit of Rs 1 crore for that year. For 2004-05, it may break even or report a small loss. But the company would be on the growth mode from 2005-06, according to company officials.

Officials had earlier said that under the new scheme, MFL loses about Rs 2,000 on every tonne of urea produced. With the board recommending a higher subsidy compensation, it would be able to cut its losses.

MFL will also be eligible for government guarantee for a loan of Rs 150 crore to be raised from the market to tide over the liquidity crunch.

The board has recommended waiver of interest and penalty on Government of India loans. The company will benefit to the extent of Rs 16.83 crore for 2003-04 and Rs 18.49 crore for 2004-05 through this waiver.

MFL, on its part, has agreed that further plan or non-plan funds need not be released by the Government of India from 2005-06 and that it would not seek budgetary support for meeting normal capital expenditure but would raise it on its own.

The company will implement a voluntary retirement scheme and bring down the workforce to 1,000 and that it would achieve a turnover of Rs 2,000 crore with a net profit of Rs 50 crore from 2005-06.

For the nine-month period ending December 2004, the company posted a loss of Rs 79.27 crore on sales of Rs 961.15 crore compared with a loss of Rs 24.71 crore on sales of Rs 823.11 crore in the corresponding previous period.

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