The Hindu Business Line : `Madras Fert networth hit by urea pricing policy'

THE net worth of Madras Fertilizers Ltd (MFL) is fully eroded with accumulated losses mounting to Rs 206 crore against a net worth of Rs 175 crore. According to its Chairman and Managing Director, Mr Sukumar N. Oommen, the main cause for the company's downturn is the new pricing policy of urea, which is biased against MFL. The company is pushing for a change in the urea-pricing policy.

Following a presentation made by him to the Union Minister for Fertilisers, Mr Ram Vilas Paswan, last week, the Centre has recognised that the pricing policy was responsible for the company going sick. A shift in policy is necessitated if the company has to be retrieved from the BIFR, he said.

MFL is one of the public sector enterprises that was slated for disinvestment by the previous Government. The negotiations were at an advanced stage and the transaction documents were to have been circulated to the bidders. However, the situation has not progressed, and the present Government is yet to take a firm stand on the proposal. "For the present, it appears to be on hold," he said.

During 2003-04 the company, which has extended its accounting year by three months, has reported a loss of Rs 60 crore, he said.

MFL has come a cropper on statistics, the group-weighted average on which the urea subsidy is disbursed. Since 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 in the group it is in.

MFL has made investments of about Rs 700 crore in 1993 and 1998 finds that the weighted average of depreciation allowed to it is Rs 280 a tonne of urea against its actual depreciation of Rs 885. It is losing about Rs 650 on every tonne.

The situation is similar on capital-related charges and the other heads on which the calculation of the cost of urea is based. Thus it finds its retention price does not cover costs since its cost of production is 20 per cent higher than the weighted average of other producers in its group.

Mr Oommen said that on the retention price alone, MFL lost about Rs 26 crore. But for the policy, the company would have reported significant profits. This is unfortunate for a company that reported a net profit of Rs 8 crore in the previous year, and has consistently improved its all-round performance in terms of productivity, energy cost and overall cost conservation, according to Mr Oommen.

As commercial banks have not taken into consideration MFL's financial requirements, the company is beset with a shortage of working capital, which in turn is adversely affecting its production capacity of complex fertilisers. The cash crunch contributed to a drop in the production capacity of its complex fertilisers, he said.

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`Madras Fert networth hit by urea pricing policy'