Fertiliser Ministry receives Rs 9,000 cr as SBA to clear subsidy bill

Govt had provided Rs 70,586 crore for fertiliser subsidy in 2013-14 against a demand of Rs 1,05,497 crore

The Fertiliser Ministry has received an additional Rs 9,000 crore from the Ministry of Finance to clear the pending subsidy bills for the current financial year.

Additional funds of about Rs 9,000 crore will be provided under the special banking arrangement (SBA) at an interest rate of about 10%.

"The Finance ministry has approved Rs 9,000 crore as special banking arrangement (SBA) against the demand of Rs 10,000 crore made by the Fertiliser Ministry for paying pending subsidy bills," a source said.

This is the second time in the current fiscal that Fertiliser ministry has received additional funds as SBA to pay subsidy bills.

Against Rs 12,000 crore sought by the Department of Fertilisers in September last year, the Finance Ministry had approved Rs 5,500 crore under a special banking arrangement at an interest rate of 10.7% per annum.

The government agreed to bear interest of 8% per annum with 2.7% interest to be borne by the industry.

The government had provided Rs 70,586 crore for fertiliser subsidy in 2013-14 against a demand of Rs 1,05,497 crore sought by the Department of Fertilisers.

The urea subsidy was exhausted after making payments till July, while the provision for phosphatic and potassic (P&K) fertilisers had been utilised by December-end after making payments till September, he added.

A subsidy of Rs 41,158.85 crore was allocated for urea and Rs 29,426.88 crore for P&K fertilisers.

The official said the fertiliser ministry has hardly any money to pay subsidy bills for the third and fourth quarters of the financial year ending March 2014.

An outstanding amount of Rs 22,000 crore was carried over from 2011-12 to 2012-13. The backlog for 2012-13 was higher at Rs 32,000 and has to be paid from this year's allocations.

Amid the liquidity crisis, Fertiliser Minister Srikant Jena had written to Finance Minister P Chidambaram in October seeking immediate additional funds, saying the situation was of "grave concern" and that two state-run fertiliser firms faced closure.

Non-payment of subsidy and freight bills on time means non-recovery of a significant portion of cost of production or imports, Fertiliser Association of India Chairman R G Rajan had said at its annual conference. Such a situation is unsustainable and severely affects the capacity of the industry to maintain operations, he had said.

Profitability at IFFCO, the country's largest producer of urea, may come down by 50% in the current financial year due to a pending subsidy payment of about Rs 4,500 crore, Chairman and Managing Director U S Awasthi had said.

Finance costs for fertiliser companies are set to rise as delayed subsidy payments force them to borrow money to run operations.