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Ind-Ra turns torchlight on subsidy deficit-induced harm to urea industry

Dec 22: India Ratings & Research (Ind-Ra) has voiced deep concern over the damage suffered by the urea industry due to under-estimation of subsidy in the Central budget year after year.
8In its full rating release on Nagarjuna Fertilizers and Chemicals Limited (NFCL), Ind-Ra observes: “underestimation of the subsidy outgo by the government while making budgetary allocations has hurt the industry time and again. The government resorts to special banking arrangements and/or supplementary grants from the Parliament and/or allows the unpaid subsidy to roll over to the next year.”
8It explains: “inadequate subsidy budgets or delays in disbursal have led to increased working capital requirements of industry players. Fertiliser manufacturers fund this subsidy shortage through short-term debt, resulting in increased borrowings. Consequently, interest costs rise as borrowing costs are not included in the subsidy reimbursement mechanism. The interest cost is borne by fertiliser companies which strains their cash flow from operations, and thus credit profiles.”
8It says: “The working capital requirement of the fertilizer companies have increased over the past two to three years and companies have had to resort to additional debt as a result of delays in subsidy disbursement from the government, leading to higher leverage and additional interest burden on the companies since interest component does not form part of the reimbursable subsidy.”
8It adds: “Fertiliser production is a capital-intensive business, which can be significantly free cash flow (FCF) negative during investment cycles, using fresh debt to fund capex expansion. Fertiliser companies have long-term debt maturity profiles, due to the long-term nature of their assets, stable earnings and high financing requirements. Large Indian fertiliser companies have proven access to domestic banks for long-term project financing.”
8As urea production depends on availability of natural gas as feedstock, its short supply significantly impacts the production capability and hence the ability of a company to qualify for import parity prices benefit after meeting the cut off quantity requirement. Since fixed cost is also a pass through and is decided on per tonne basis, the non-availability of gas impacts the profitability of a company due to a low recovery of fixed costs.
8As regards NFCL’s debt servicing burden, Ind-Ra says: “NFCL expects to meet its debt service commitments of about INR4.1bn during FY15, partly by the sale of assets which is likely to bring in INR1.3bn. The company has also approached banks for additional debt to bridge the gap.”

RSMM to E-auction of 40,000 tonnes of rock phosphate

Dec 22: Rajasthan State Mines & Minerals Limited (RSMM) is bracing for E-auctioning 40,000 tonnes of rock phosphate on 30th December 2014 for supply during January 2015.
Of the total offered quantity, 30,000 tonnes would be 31.5% crushed rockphosphate (CRP) and the balance 10,000 tonnes would be 31.54% P2O5 beneficiated rockphosphate (BRP).
8The starting price for bidding would be Rs 6000 per tonne. The tendering competition is limited to indigenous users of rock phosphate and domestic traders.
8The sale of rock phosphate extracted from Jhamarkotra mines located in Udaipur district of Rajasthan would be conducted by MSTC, a Central Government undertaking.

Finance Ministry picks momentum to frame new urea policy

Dec 19: The Expenditure Management Commission (EMC) would soon organize a discussion on the new urea policy. The Finance Ministry has disclosed this as part of the status on proposals announced in the regular budget for current fiscal.
8In its ‘Mid-Year Economic Analysis 2014-2015’ (MYEA) released today, the Ministry says: “2nd Round of consultation was held with the Fertilizer Association of India. Expenditure Management Commission has fixed a discussion on the new Urea Policy.”
8The Ministry has also hinted at prospects of revival of UPA’s deferred proposal for cash transfer of fertilizer subsidy to farmers.
8MYEA says: “There has been a renewed thrust towards direct benefit transfer (DBT) or AADHAAR project. Achieving full financial inclusion is crucial for direct transfer of subsidies. In this context the successful implementation of the concomitant ‘Pradhan Mantri Jan Dhan Yojana’ is vital. Dovetailing the two schemes would enable rationalization of food, fertilizer and oil subsidies, and better targeting of beneficiaries, and thereby reduce subsidies.”
8Referring to the budget proposal to initiate a scheme to provide to every farmer a soil health card in a Mission mode, MYEA says: “EFC meeting held on 28.10.2014. New Scheme Soil Health Card will roll out in coming months. Additional allocation of Rs 56 crore has been sought for setting up of 100 Mobile Soil Testing Laboratories. State Govts have been requested to send proposals as per allocations made by Project Sanctioning Committee.”

MMTC seeks bids for supply of ammonium sulphate

Dec 19: MMTC Limited has invited tenders for delivery of 18,000 tonnes of ammonium sulphate (caprolactum or steel grade) at Chennai port.
8The shipment period is December 2014/January 2015. The last date for submission of tenders is 23rd December 2014.

ICRA issues positive outlook for the fertilizers industry

Dec 18: Credit rating major ICRA foresees Achhe din (good days) for the fertilizer sector against the backdrop of improved market conditions and the Government’s intention to announce a new fertilizer policy.
8In its report titled ‘Indian Fertiliser Sector: December 2014 Update’, ICRA says: “The fertiliser industry performance is expected to improve during FY15, primarily on account of normalisation of system inventories, reasonable monsoon in a major part of the country despite drought in certain regions and a stable operating environment, with expectations of reforms from the new government, stable currency rates and modest global prices of fertilisers and key inputs.”
8It adds: “Besides, the cash flow issues for the industry are expected to ease to some extent as subsidy flow has eased during YTD FY15 and the GoI has approved a Special Banking Arrangement for the industry. The lower-than-anticipated gas price increase has also come as a breather to the domestic fertiliser industry as it will lead to limited increase in the blockage of working capital in the form of subsidy.”
8Referring to the row over gas availability for P&K manufacturers, ICRA says it remains to be seen how the Government would resolve this matter.
8It observes: “On the investment front, with the GoI clearing the way for new fertiliser projects with the notification of the amended NIP-2012 and the approvals expected to be finalised in the near term, a limited number of projects (3-4) may come up over the next five years.”
8It says: “the government is working on a comprehensive fertiliser policy, which is expected to address several aspects of the fertiliser industry and usher in reforms in the sector, particularly on the urea pricing front, in the near-to-medium term. Reforms in the fertiliser sector would determine the direction that the industry will move in the medium-to-long term.”

NFL seeks bids for comprehensive energy audit of Panipat plant

Dec 18: National Fertilizers Limited (NFL) has invited tenders for performing an in-depth energy audit of ammonia, urea and offsite facilities at its revamped panipat fertilizer plant in Haryana.
8According to the tender document the bids are being sought in pursuance of Power Ministry’s notification issued on 27th May 2014directing every designated consumer to get an energy audit conducted by an accredited energy auditor within 18 months of notification.
8NFL thus “intends to get Energy audit of its manufacturing Unit located at Gohana Road, Panipat in accordance with Bureau of Energy Efficiency (Manner and Intervals of Time for Conduct of Energy Audit Regulations 2010.”
8The auditor’s mandate would include preparing recommendations on energy saving measures with their cost benefit analysis including sensitivity analysis. The auditor would also have to prioritize and prepare action plan for such recommended measures which in the opinion of NFL are technically viable.

Global phosphates market likely to become tight in Q1 2015; India factor would be major determinant: PotashCorp

Dec 17: Canada’s Potash Corporation foresees tightening of the global phosphates market during the first quarter of 2015 and spurt in Indian demand for DAP in the first half of 2015.
8In its latest quarterly global market analysis report, PotashCorp says: “We believe the market will transition back to tighter balance in the first quarter of 2015 as demand re-emerges and production outages reported in fourth-quarter 2014 impact supply.”
8It says: “India’s DAP stocks at the end of 2014 are expected to be well below the previous year, which could support increased demand in first-half 2015.”
8It has identified four key factors that would influence global phosphates markets in the coming months. And the foremost factor to watch would be the “Impact of lower Indian DAP inventories on the timing and magnitude of its import demand.”
8According to the report, DAP demand was slow to emerge in India during the first half of 2014 due to uncertainty over subsidy levels and a slow start to the monsoon season. Monsoon rains and domestic phosphate demand improved in the second half but weak import margins limited buying activity. This compressed the window for securing product for the Rabi planting season and resulted in a significant drawdown of domestic DAP stocks.
8It has pointed out that the global phosphate market has gone through several ups and downs during 2014. Supply challenges and strong demand in several key importing regions during the first half resulted in a market that was tighter than anticipated. Prices softened briefly during the second quarter as buying for the spring season eased and Indian demand was slow to materialize.
8The Report says: “The market tightened again in the third quarter as Western Hemisphere demand strengthened and South Asian buying picked up as the quarter progressed. In the final quarter, demand headwinds began to emerge due to a later start to harvest in the US and uncertainty over softening crop prices. We believe the market will transition back to tighter balance in the first quarter of 2015 as demand re-emerges and production outages reported in fourth-quarter 2014 impact supply.”
8As for urea, it observes: “Import demand in India has been sporadic as major buyers have tried to time their tender offers to take advantage of seasonal price weakness. Although import volumes trail 2013, we expect large shipments in the coming months will bring India back to parity with recent years.”

MMTC seeks bids for supply of 60,000 tonnes of urea

Dec 17: MMTC Limited has invited tenders for import of 60,000 tonnes of bagged urea
for delivery at three warehouses in Nepal as mentioned in the tender document.
8The company has specified two delivery schedules for delivery of urea in two consignments at three warehouses. The schedules are: January-March 2015 and April-June 2015.
8It says: “The fertilizer should be packed in 50kgs net in polypropylene woven bags with polyethylene inner bags. the weight of the polypropylene bag and gauge of inner polyethylene bag should not be less than 200 grams and 200 gauge respectively. the size of the bag should be 40” x 22” and fibre construction of the outer bag should not be less than 14” x 14” per square inch. The bag should be stiched with strong synthetic thread.”
8The last date for submission of bids is 19th December 2014.
8According to the tender document, “The consignment must be insured at its total for price plus 10% against all risks including TNPD, SRCC, water damages, terrorism etc. the validity of insurance policy must be at least 45 days after final date of discharge at mmtc’s buyer warehouse.”

Centre asks States to share subsidy burden for revival of 3 naphtha-based plants

Dec 16: The Centre has contrived an ad hoc mechanism for computation of subsidy for currently closed three naphtha-based urea plants under which the concerned States would have forgo taxes on the feedstock.
8The transient subsidy mechanism for 100-day period was disclosed by the Minister for Chemicals and Fertilisers Ananth Kumar in Lok Sabha on Tuesday.
8Answering a question on stoppage of subsidy to naphtha-based urea plants in Lok Sabha, Mr. Kumar said, the Cabinet Committee on Economic Affairs (CCEA) approved the new subsidy proposal on 10th December 2014 on the basis of a note submitted by The Department of Fertilizers (DOF).
Explaining the new mechanism, he said: “The concession rate for these plants will be determined notionally on the basis of weighted average delivered cost of spot RLNG to recently converted plants after deducting state taxes (VAT, Entry tax) on Naphtha/FO or the cost of production of urea from Naphtha/FO after deducting state taxes (VAT, Entry tax) on Naphtha/FO, whichever is lower.”
8He continued: “The above decision will be operationalzed after concerned State Governments agree to waive the local taxes (VAT, Entry Tax) on Naphtha/FO used as feedstock for urea production.”
Mr. Kumar added: “CCEA has approved that the operation of the plants be allowed on only for a period of 100 days from the date of notifications. The Committee further directed that a proposal for alternative arrangements be finalised for its consideration, before the expiry of the aforesaid period.”

OMIFCO yields Rs 14,700-cr saving; DOF finalizes sops for additional urea prod

Dec 16: Oman India Fertilizer Company (OMIFCO) has proved to be a mega urea subsidy-saver for India.
8Answering a question on fertilizer joint ventures in Lok Sabha, the Minister of State Chemicals and Fertilisers Hansraj Gangaram Ahir, said: “There has been substantial saving on foreign exchange through these JV projects. The total foreign exchange saving in the last 10 years by importing Urea from OMIFCO, a JV between Oman Oil Co. & IFFCO/KRIBHCO is around Rs. 14,700 Crores.”
8He pointed out that the country’s dependence on import at present is to the extent of 25% in Urea, 90% in phosphates and 100% in Potash.
8He stated: “Hence, Government has been encouraging Indian companies to establish Joint Ventures in countries which are rich in fertilizer resources such as gas, rock phosphate and potash.”
8Replying to another question, Mr. Ahir said: “The Government has drawn action plan for incentivizing the additional production of urea beyond reassessed capacity by existing indigenous urea units by amending the existing provisions of New Investment Policy – 2008 and Modified New Pricing Scheme-III.”

RCF pitches for prospective application of gas pipeline tariff

Dec 15: Rashtriya Chemicals and Fertilisers Limited (RCF) has urged Petroleum and Natural Gas Regulatory Board (PNGRB) to fix gas pipeline tariff prospectively and waive off retrospective recovery in the tariff order itself.
8In its comments on PNGRB’s consultation paper on structure of pipeline tariff, RCF says: “It is observed that the regulator determines levelized tariff for pending cases after lapse of considerable period of time. This new tariff is made applicable retrospectively.”
8Citing the case inordinate delay in determination of provisional tariff for Uran-Trombay pipeline and its retrospective application, RCF adds: “the gas consumer has no recourse to realize such increased burden from his customers with retrospective effect. In the case of fertilizers, even the MRP of product is controlled. Hence it is not possible to recover such extra burden by future pricing. Moreover, the consumer has already frozen his accounts after due audit procedures and paid taxes and dividends based on such audited accounts.”

RSSML gears up for disinvestment & stock market listing

Dec 15: Rajasthan Government is planning to divest 10-25% equity stake in the country’s dominant rock phosphate producer Rajasthan State Mines & Minerals Limited (RSMML) as a part of the company’s stock market listing move.
8The company has invited expression of interest from consultancy firms that would provide it with entire range of services right from determining the size of initial public offer (IPO) to listing of shares on the bourses.
8Rajasthan Government holds 99.99% stake in RSMML, which mines rock phosphate, gypsum, lignite, lime and other minerals. The company also has notable presence in renewable energy sector.
8RSMML says: “The ‘Consultant is required to assist the company for proposed disinvestment of equity of Government of Rajasthan in Rajasthan State Mines & Minerals Limited through Initial Public Offering (IPO) and the scope of work would cover to assist the company in entire process of disinvestment including
assisting in appointment of the Book Running Lead Managers & other consultant/agencies and also to undertake other related activities in respect
of “Initial Public Offer.”
8In mid-2010, RSMML had toyed with the IPO idea but implement it.

Dec 12: MFL seeks offers for supply of Ammonium Sulphate   Details
Dec 12: New urea capacity under NIP 2012 to come up in 2017-18   Details
Dec 11: NMDC-led consortium signs MOU with Russia's ACRON for potash JV   Details
Dec 11: Govt. allocates additional subsidy for indigenous urea   Details
Dec 10: Fert subsidies help farmers in subsidizing countries but hurt them in other countries: OECD study   Details
Dec 10: RCF plans big-ticket energy saving project at its Thal complex   Details

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