The three urea makers in the South, which are currently using naphtha as feeder stock, must have a definite assurance that the subsidy will not be withdrawn till gas connectivity is fully operational
The government had notified that the three naphtha based urea plants in the South of India, which are owned by Madras Fertilizers, Southern Petrochemical Industries Corporation and Mangalore Chemicals & Fertilizers, that subsidy will be stopped from September last year. The plants were not ready for switching over to gas instead of naphtha as feeder stock and so, from October these plants stopped production. They were not ready, simply because the gas pipe lines were not in place.
Now, after losing three months of production, and being subjected to unjustifiable demands, the Union Minister for Fertilizers has announced that the subsidy would be available for the next 100 days. What happens after 100 days? Would the pipeline be ready for gas supplies? In the meantime, to meet the national needs, urea had to be imported from the international market at current prices.
In this connection, it may be recalled that due to the farmers’ agitation in 2013, work on the GAIL pipe line, being laid through some farm lands had to be stopped, as the Tamil Nadu government wanted these to be aligned to the national highways. The matter of this 300 kms pipe line is in the Supreme Court.
After the stoppage of production by these three urea producers, naphtha produced by the Chennai Petroleum Corporation, a subsidiary of Indian Oil Company had to be exported at low prices. In addition to supplying naphtha, they were also selling other related products to these urea units. The urea producers had demanded that instead of shipping out naphtha why not make it available at export parity price to them? Seeing the plight of the Urea producers, the Tamil Nadu Government made the first move to waive the 5% Value Added Tax.
In the meantime, there has been some good news that came from B Ashok, Chairman of Indian Oil Corporation, while on a visit to Chennai. While meeting the media persons, he gave details of the Ennore LNG import terminal with a capacity of 3 million tonnes costing about Rs5,130 crore, in North Chennai, and is expected to be completed by 2017.
The LNG pipeline will be laid by IOC mostly following an existing route for liquid petroleum products, for which IOC has floated a joint venture with TIDCO (Tamil Nadu Industrial Development Corporation), who will work within the guidelines set by the State. It may be stated that IOC has LNG resources overseas in Canada and Cameroon.
In the case of Mangalore Chemicals and Fertilizers, it has been in the news due to take over bids etc, but which also had stopped production from October. However, with the announcement of subsidy extension by 100 days, they expect to resume production in the next few days. Following the steps of Tamil Nadu Government, Karnataka State Government also agreed to waive the 5% VAT. MCF has already incurred the capital expenditure of over Rs300 crore for converting the factory to be able to change over from naphtha to LNG-based operations. However, it will take a couple of years before the LNG pipeline can be coupled to the plant.
The agitating Union leaders in the Mangalore Chemicals and Fertilizer plant had sought the intervention of the Union Minister for Fertilizers, saying that the Central government must ensure expeditious arrangement for gas connectivity and pleaded that till this is done subsidy must continue.
It is a sad state of affairs that subsidy on such essential items like Urea was withdrawn without any forethought because laying the gas pipeline is not within the realms of control of the fertilizer plants. The farmers agitation in Tamil Nadu hit the headlines a long time ago and all the concerned parties were trying to work out an acceptable formula. As mentioned, the matter is now with the Supreme Court.
The three urea makers in the South, who are currently using naphtha as feeder stock, must have a definite assurance that (a) subsidy will not be withdrawn till gas connectivity is fully operational; (b) 5% VAT will be waived till this (gas connection) occurs and (c) naphtha will be supplied to the urea makers at export parity price.
This move will at least prevent import of urea at international price and save the much needed foreign exchange.
has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)