The Hindu Business Line : Centre owes fertiliser cos Rs 11,640 crore as subsidy

New Delhi May 9 The Indian Farmers Fertiliser Cooperative (Iffco), K.K. Birla and Murugappa groups are among the worst hit by the almost Rs 12,000 crore worth of pending fertiliser subsidy reimbursement claims on the Union Government.

As on March 31, the Centre owes fertiliser companies a whopping Rs 11,641.51 crore as outstanding subsidy reimbursement, arising from the difference between their concession rates (roughly corresponding to the actual production or import costs) and the controlled prices at which they sell nutrients to farmers.

Cost escalations

The Rs 11,641.51-crore sum includes Rs 7,750.08 crore of claims against the Centre's existing concession rates and Rs 3,891.43 crore on account of cost escalations not provided for, pending the notification of new rates. While Rs 5,951.65 crore subsidy dues are towards urea, the balance Rs 5,689.86 crore is on potassic, phosphatic and assorted complex fertilisers.

The piling up of subsidy claims has most severely impacted Iffco, which is owed Rs 2,579.54 crore not counting the Rs 908.59 crore dues to its subsidiary, Indian Potash Ltd.

Others badly affected are the K.K Birla Group (Rs 1,711.49 crore receivable, including Rs 521.93 crore for Chambal Fertilisers and Chemicals, Rs 505.04 crore for Zuari Industries and Rs 684.52 crore for Paradeep Phosphates), the public sector National Fertilizers Ltd (Rs 1,080.54 crore) and the Murugappas (Rs 831.97 crore, including Rs 442.26 crore for Godavari Fertilisers & Chemicals and Rs 389.71 crore for Coromandel Fertilisers).

These apart, there are host of other bleeding players. Prominent among them are: Tata Chemicals (its Babrala plant in Uttar Pradesh has outstandings of Rs 669.88 crore), Mr A.C. Muthiah's Southern Petrochemical Industries Corporation (Rs 413.26 crore), Mr K.S. Raju's Nagarjuna Fertilizers & Chemicals (Rs 380.19 crore), Mr Ajay Shriram's DCM Shriram Consolidated (Rs 379.45 crore), Dr Vijay Mallya's Mangalore Chemicals & Fertilizers (Rs 337.28 crore), the state-owned Rashtriya Chemicals & Fertilisers (Rs 739.17 crore), Gujarat Narmada Valley Fertilizers Company (Rs 438.93 crore) and Gujarat State Fertilizers & Chemicals (Rs 347.45 crore).

Exposure to sugar

Incidentally, some of the above groups - K.K. Birla, Murugappa and DCM - also have huge exposure to yet another beleaguered sector: sugar.

The worst may not be over yet. The Rs 12,000-crore claims for March 31 could well be carried forward and taken care of by the Rs 22,451-crore budgeted subsidy bill for 2007-08. But that would leave only about Rs 10,500 crore for the current fiscal, when the Department of Fertilisers is projecting a requirement of around Rs 33,000 crore. That means taking forward claims of some Rs 22,000 crore for the next fiscal.

"This is unsustainable and most units will simply stop producing. The Government may somehow manage supplies for the coming kharif season, but would find things going out of control when rabi plantings are due," an industry source said.

Dimensions of subsidy

Fertiliser subsidy is basically a function of two variables: the cost of production (as reflected in the `retention price' of individual units) and the price at which the nutrients are supplied to the farmer.

In the case of urea, the maximum retail price has been kept unchanged at Rs 4,830 per tonne since February 28, 2002. During these five years, retention prices have obviously gone up on account of increased cost of feedstock (gas, naphtha, fuel oil), freight and various overheads. And as the gap between higher retention prices and the constant farmgate price has widened, so have the Centre's fertiliser subsidy bill or unpaid dues of companies mounted.

Retention prices

The retention prices vary from unit to unit, depending on plant vintage and the type of feedstock used. The latest figures available are for the quarter ending March 31, 2006 — after which there has been no notification of new prices. Going by this, the weighted average retention price for all urea plants in the country worked out to Rs 9,979 per tonne or more than twice the farmgate price.

But within this, there are wide variations. The lowest retention price was of National Fertilisers Ltd's Vijaipur-I (Rs 5,078), followed by Krishak Bharati Cooperative's (Kribhco) Hazira plant (Rs 5,223).

Others whose prices were below the national average included Indo-Gulf Fertilisers' Jagdishpur (Rs 6,266), Kribhco Shyam Fertilizers' Shahjahanpur (Rs 6,910), Nagarjuna Fertilizers' Kakinada-I (Rs 6,922), Chambal Fertilisers' Gadepan-I (Rs 7,051), National Fertilisers' Vijaipur-II (Rs 7,098), GSFC's Baroda (Rs 7,437), Iffco's Aonla-I (Rs 7,585), Tata Chemicals' Babrala (Rs 7,611), Iffco's Aonla-II (Rs 8,025), Iffco's Kalol (Rs 8,397), Gujarat Narmada's Bharuch (Rs 9,398) and Rashtriya Chemicals' Thal (Rs 9,859).

At the other end are the high-cost producers, mostly running on naphtha. The highest retention price is the Manali unit of Madras Fertilisers (Rs 22,569), followed by Zuari Industries' Goa (Rs 20,069), SPIC's Tuticorin (Rs 20,050), Mangalore Chemicals (Rs 18,815), Iffco's Phulpur-I (Rs 15,463) and Phulpur-II (Rs 15,516), DCM Shriram's Kota (Rs 14,931), National Fertilisers' Panipat (Rs 14,512), Nangal (Rs 14,025) and Bhatinda (Rs 13,420), Nagarjuna's Kakinada-II (Rs 12,308) and Chambal's Gadepan-II (Rs 11,533).

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