The companies are the key sources of urea in the state and they have a combined capacity of about a million tonnes per annum.
MFL said: “Consequent to the discontinuation of subsidy to naptha-based urea manufacturers by the Government of India, effective October 1, 2014, the company has suspended its production of urea from October 8, 2014.”
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SPIC has informed the exchange, the company’s plants have been shut for maintenance works as may be required. However, industry sources said that production was stopped for the same reason, the discontinuation of subsidy.
On September 8, while addressing shareholders, SPIC’s chairman said: “The government of India has extended the timeline for the payment of subsidies to naphtha-based plants till the end of this month. The operations of your urea plant beyond this month entirely depend on the government deciding to continue subsidies to naphtha-based units.”
On the impact of the closure these plants, industry experts said it will not have an immediate impact considering that most of the state is facing drought-conditions and 70 per cent of agriculture activities are over and kharif season is also over by September. Besides, if the demand goes up, urea can always be imported which is cheaper than that from the domestic market.
Industry sources said, while the maximum retail price for the farmer is around Rs 5,500 per tonne, the subsidy the government gives is around Rs 3,800 per tonne. They added that the cost of imported urea is around $250-350 (around Rs 20,000) a tonne.
In 2013-14 of the around Rs 2,700 crore revenue for MFL, government’s subsidy was Rs 2,300 crore, noted company officials.
Earlier, the government has issued a direction to convert the existing facility to gas from naphtha before June 30, 2014, failing which the subsidy may be withdrawn. The deadline was extended upto September 30, 2014.