The fertilizer industry has opposed a move initiated by the ministry of finance to issue fertiliser bonds against outstanding subsidy payments, saying this will not solve its liquidity problem.
Fertilisers Association of India (FAI), the industry?s representative body, in a letter written last week to the department of fertilisers (DoF) has argued that the issuance of bonds won?t eradicate the cash-flow problem faced by companies, as only suppliers of major raw materials such as feedstock are ready to extend further credit to the industry. Banks and financial institutions are not coming forward to extending their working capital limit, it added.
In May and June, some of the urea units had to suspend their production due to disruption of feedstock supply on account of non-payment of dues.
FAI has demanded entire supplementary grant of Rs 15,000 crore to be paid in cash against the formula coined by the government of issuing the bonds to the tune of Rs 7,500 crore and the rest in cash.
FAI has also said even if fertiliser companies pledge the bonds to financial institutions as security for arranging working capital, the units are likely to suffer a loss of about 4% due to difference in the rate of interest on the working capital arranged by them and the rate of interest receivable on the bonds issued by the government. The rate of interest on special bonds issued to fertiliser units will be approximately equivalent to the government securities ranging between 8.5% and 9%, while the rate of interest on the working capital would be around 12% or even more.
Consequently, fertiiser units will suffer a loss of 4-5% interest on working capital. Since the bonds will be tradable, it will not help the industry. The bonus will have to be sold at discounted rate which will further upset the bottomlines of the industry. The discounts are not likely to be less than 3-4% which will badly affect the margins of fetiliser units and threaten operation and supply of nutrients.
