Urea retention pricing hits Zuari rating

Our Corporate Bureau

Mumbai, Jan 4: Following the recent notification by the department of fertiliser (DoF) revising the retention price of 13 plants downwards with retrospective effect, the Rs 50 crore commercial paper (CP) programme of Zuari Industries Ltd has been placed on ‘rating watch with negative implications’ by the credit rating information services of India Ltd (Crisil). The rating agency had earlier assigned a ‘P1’ rating to the company’s CP programme.

The DoF has recently revised the consumption norms underlying the retention price of 13 urea manufacturers. The DoF has stated that while the revision of consumption norms along with other parameters and norms forming part of the retention price of urea is being examined by the government as part of the formulation of policy for the VII and VIII pricing periods, it has decided to revise the consumption norms on an interim basis with effect from April 1, 2000 in order to contain the outflow of subsidy.

Accordingly, a demand of around Rs 112 crore has been raised on Zuari Industries for the 18-month period ending Septemeber 30, 2001 and its retention price have been revised downwards by Rs 1,851 per million tonne.

The industry has represented to the government that the interim downward revision of retention price, only on the basis of consumption norms, without giving the benefit of the balancing effect of upward revision in conversion costs and capital recovery charges (for the capex incurred) would seriously impact the industry’s financial health.

Accordingly, it is expected that the government will finalise the revised retention prices of urea manufacturers by January 2002 for the VII and VIII pricing periods, which is expected to correct the current anomaly.

Zuari Industries has paid the Rs 112 to the government in December 2001 and the profitability of its urea operations has been significantly affected. The company feels that the overall impact on Zuari would be less severe if its retention price is revised taken into account all the aspects of their cost-structure under the VII and VIII pricing policies.

Crisil in its release stated that it is closely monitoring the situation and a final view will be taken once the final revision in retention prices is carried out.