According to industry sources, most of the 22 fertiliser companies have incurred losses on the bonds they received as they are trading at 7.5 per cent discount. For instance, Hyderabad-based Nagarjuna Fertilizers and Chemicals Limited (NFCL) incurred a loss of Rs 16.6 crore in 2007-08 on account of this. This is a substantial amount considering the fact that NFCL made a net profit of only Rs 22.29 crore on a turnover of Rs 2,213.43 crore during the year.
NFCL director and chief operating officer, R S Nanda, told Business Standard that the Union government had issued special bonds to the tune of Rs 268 crore to NFCL out of the total subsidy amount of about Rs 750 crore it had received last year.
Similarly, leading fertiliser firms such as Indian Farmers Fertiliser Cooperative (Iffco) and National Fertilisers Ltd (NFL) have also reportedly incurred losses on the bonds that were issued in two tranches in December 2007 and February 2008. Iffco, which had received Rs 1,676 crore as fertiliser bonds, is stated to have sold the first tranche of bonds worth Rs 1,030 crore at a loss of 1.5 per cent.
Industry sources expect more bonds to be floated this year as, according to fertiliser ministry estimates, the subsidy amount would rise to Rs 95,000 crore in 2008-09 from around Rs 40,000 crore last year. As against this requirement, the budgetary provision towards the subsidy is of the order of Rs 31,000 crore.
Consequently, sources said, the government would be left with no alternative but to issue more bonds to defer actual cash payment. This is likely to further impact the bottom lines of the cash-strapped fertiliser units.
Nanda said margins of Indian fertiliser units were very low at present. The more efficient gas-based urea producing units were being paid by the government $160-200 a tonne depending on their variable cost.
On the other hand, the international prices of urea have touched $600 a tonne.
In view of this, many domestic fertiliser units are exploring overseas projects. NFCL is also exploring the possibility to set up urea plants in Nigeria and Iran.
