Tamil Nadu ready to forego VAT component on naptha to revive urea plants

Move will result in Rs 90 crore loss for the state government

Tamil Nadu Government has said that it is willing to forego the VAT component on naptha, which is estimated to be around Rs 90 crore, used by the two urea producing fertilizer plants, to revive their operations. The state administration said that the decision comes to protect hundreds of workers in the State, which already lost over 35,000 jobs after the closure of Nokia and its suppliers near Chennai, and to help farmers.

The State also urged the Centre to issue a notification for the continuance of the subsidy immediately to the two fertilizer units in Tamil Nadu.

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 got 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 6.2 lakh tonnes and 4.75 lakh tonnes of Urea annually.

Tamil Nadu Chief Minister O Paneerselvam said that it is "adversely" affecting the livelihood of hundreds of workers and disrupting the production of urea in the State and the country necessitating higher imports.

In a letter addressed to the Chief Secretary, Tamil Nadu, the Union Fertilizer Secretary has requested the State Government should consider waiving VAT on the Naphtha used by SPIC and Madras Fertilizers Ltd.

"I understand that the notification for the continuance of subsidy has not yet been issued pending the confirmation from the State Government on the waiver of VAT," said the Chief Minister in a letter to the Prime Minister today. According to Industry sources, the State Government will forego around Rs 50 crore from SPIC and another Rs 40 crore from MFL.

Tamil Nadu is already facing a huge financial crunch and any additional financial outgo at this juncture would be very difficult to manage considering the limited sources of revenue to the State. However, in the interest of commencing the operations of these two plants, the livelihood of hundreds of workers and the interest of farmers, the Government of Tamil Nadu is willing to forego the VAT on Naphtha used by the two urea producing fertilizer plants, he said.

The Chief Minister noted, oil marketing companies are charging the import parity price for the Naphtha supplied by them to the fertilizer units which is significantly higher than the price at which the oil marketing companies export Naphtha. Hence, it would only be fair for the oil marketing companies to claim only the export parity price for the Naphtha supplied to the fertilizer units.

He request the Government of India to issue the notification for the continuance of the subsidy immediately to the two fertilizer units in Tamil Nadu and asked to continuance of the subsidy till such time gas connectivity is provided to these two units by the Government of India. He also requested that for logistics and other reasons, Tamil Nadu's allocation of urea may be made from the production of the two fertilizer units located in Tamil Nadu.