SPIC allowed to produce urea using feed stock Naphtha

The State government has earlier said that it is willing to forego the VAT component on naphtha to help fertiliser manufacturing

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In a breather to the fertiliser manufacturer Southern Petrochemical Industries Corporation Ltd, the Union Ministry of Chemicals and Fertilisers has informed the company that it would be allowed to produce Urea using feed stock Naphtha for a limited period.

In a regulatory filing, the company said that the Ministry has informed it that the company would be allowed to produce Urea using feed stock Naphtha for a period of 100 days from the date of Notification, which is January 7, 2015.

"The company has therefore commenced startup activities from today," it said, adding that it would inform the exchange immediately on commencement of production. The production of urea in the company has been affected due to the central governments' policy on usage of feed stock Naphtha as fuel.

In the end of December, 2014, the Tamil Nadu government has said that it is willing to forego the VAT component on naphtha, a move that may affect the exchequer by around Rs 90 crore while ensuring the job of hundreds of workers in the fertiliser plants in the State. This move was aimed to improve urea supply due to resumption of operations of the two urea plants in the state.

It may be noted, the Centre has decided to discontinue subsidy for the Naphtha based urea fertilizer plants since October 2014 till such time gas connectivity is provided to these two plants by the Government of India.

Tami Nadu has two major fertilizer plants owned by SPIC at Tuticorin and Madras Fertilizers Ltd., Manali, near Chennai. These two plants have shut their operations since October 2014. SPIC and MFL got production capacity to the tune of 620,000 tonnes and 475,000  tonnes of urea annually.

According to industry sources, the state government will now have to forego around Rs 50 crore in VAT from the operations of SPIC and Rs 40 crore from MFL.

Tamil Nadu Chief Minister O Paneerselvam, while announcing the decision, also said that oil marketing companies were charging import parity price for naphtha supplied by them to the fertiliser units, and this was significantly higher than the price at which they exported the commodity. Hence, he suggested it would be fair for them to claim only the export parity price.