MCF set to produce 380,000 tonnes urea in FY16 on continued naphtha subsidy

The government has allowed continuation of naphtha subsidy to MCF and two other naphtha-based urea plants in south India till gas supply starts

The government’s approval to continue with the production of urea using naphtha as feedstock has come as a shot in the arm for Mangalore Chemicals and Fertilisers Ltd (MCF). The company, which was forced to suspend production for about 100 days last year due to the discontinuation of subsidy to naphtha-based fertiliser plants, is now confident of achieving its installed capacity of 380,000 tonnes of urea this year.

However, the uncertainty is still prevailing over how and when the subsidy arrears, amounting to Rs 800 crore, will be paid to the company, a top MCF official said.

"Last year, we were forced to shut down production for over three months due to the stay on subsidy. After we told the government that there will be a shortage of 1.5 million tonnes of urea production in south India, the government has agreed to continue the subsidy to naphtha-based plants in the south," Deepak Anand, Managing Director, MCF said.

He said, though MCF was ready to run its manufacturing plant at Mangaluru on gas, it has to continue production using naphtha. The company has invested over Rs 300 crore to convert its plant from using naphtha as feedstock to LNG. However, the delay in the commissioning of 485-km long gas pipeline from Kochi to Mangaluru has forced MCF to continue on naphtha.

MCF has resumed its full capacity production from April 1, 2015 using naphtha as feedstock. In 2014-15, MCF operated its plant for about nine months and produced only 250,000 tonnes of urea.

The company is also ready to make use of RLNG (re-gasified LNG) as and when it comes to Mangaluru coast. Fertiliser minister Ananthkumar on Wednesday announced the continuation of urea production by the three southern fertiliser plants using naphtha as feedstock till availability of gas through pipeline or by any other means.

The fertiliser ministry on Wednesday approved the continuation of production of urea from the Madras Fertilizers Ltd, Mangalore Chemicals and Fertilizers Limited and Southern Petrochemicals Industries Corporation using Naphtha as feedstock till the availability of gas through gas pipeline or by any other means. The move comes closely after the announcement of the Urea Policy last month by the government.

Union minister for fertilisers and chemicals H N Ananthkumar also announced that the respective state governments, Tamil Nadu and Karnataka, have been told not to levy value added tax or entry tax on the naphtha / FO as decided in the earlier meeting of the Cabinet Committee on Economic Affairs (CCEA) in December 2014.

The approval was given to these units to ensure the adequate supply of urea during the ongoing kharif season. These three naphtha-based urea units with an annual capacity of 1.48 million tonnes, will cater to the demand in Karnataka, Tamil Nadu and Kerala (total demand is around 2.25 million tonnes per annum) throughout the year. "Until I see the actual policy document, I cannot comment on it. Till then, I don’t know whether it is viable to produce fertiliser. There is no clarity as to how the government will pay the subsidy to us," Anand said.

The government has indicated that it would give the lowest of the price of either gas or naphtha to these three fertiliser units.

Anand said, MCF has been waiting for the payment of subsidy arrears from November 2012. Out of an outstanding subsidy of Rs 800 crore due to the company, the balance subsidy amount works out at Rs 300 crore which was retained by the government.