Fertiliser companies hit by policy paralysis, subsidy pay delays

PTI Posted online: Tuesday, Dec 31, 2013 at 0000 hrs
New Delhi : Change of guard involving two ministers and three secretaries, and policy paralysis scrubbed away the promise urea investment policy held out for the year that had the potential to transform subsidy and inefficiency ridden fertiliser sector.

Delayed subsidy payments, which now run into Rs 36,000 crore, and lack of clear direction on boosting domestic output to cut import dependence sums up the fertiliser sector in 2013.

Change of guard at the Fertiliser Ministry with DMK withdrawing support from the UPA government and stiff battle over taking control of Vijay Mallya's Mangalore Chemicals and Fertilisers were the major highlights.

The year started on a promising note with the government notifying a new urea investment policy to encourage industry to set up new plants and boost domestic production to reduce current import dependence of about 8 million tonnes.

However, promise turned out to be without hope as the policy was not implemented through the year.

Good monsoon perked up the demand of nutrients, especially, urea which is still under government control and is cheaper than other fertilisers. Domestic retail prices of phosphatic (P) and potassic (K) fertilisers fell during the year due to decline in global rates, though it was much higher than urea.

Easing of global prices came as a big relief to the government, but it still grappled with the problem of clearing subsidy arrears to the industry.

"There was no major development on the policy front as we were expecting. The major worry was delay in subsidy payment by the government to companies," Fertiliser Association of India (FAI) Director General Satish Chander said. The government has not yet paid subsidy dues to the tune of Rs 36,000 crore to companies which affected their cash flows, he said, adding that profits of fertilisers firms could drop by 30 per cent this fiscal because of higher finance cost.

Also, the eagerly awaited new urea investment policy could not be implemented despite 15 firms showing interest in it as the government kept the policy on hold even as fertiliser ministry proposed to remove 'guaranteed buy back' clause which was cause of much confrontations.

Despite industry's efforts, talks of urea decontrol did not gain momentum.

Rather there was a doubt over the efficacy of decontrol of P&K fertilisers done in April, 2010, for bringing in competition among manufacturers and ensuring reasonable retail prices.

Much of the policy inertia was seen during the tenure of DMK leader M K Alagiri, who later resigned after his party withdrew support from the UPA government. However, after taking over of the portfolio by Congress leader Srikant Jena, the situation started showing signs of improvement.

Even the change of three secretaries in a single year did not move things forward.

Nonetheless, the major attraction of the year was the hot battle between Deepak Fertilisers and Zuari Chemicals for takeover of Vijay Mallya-owned UB group's Manglore Chemicals and Fertilisers Ltd (MCFL), though neither of them could strike any deal during the year.

Going forward, Tata Chemicals Managing Director R Mukundan hoped the policy regime for fertiliser business would improve in 2014 with implementation of nutrient based scheme (NBS) for urea and timely payment of subsidy bills.