Three naphtha-based urea manufacturing companies in southern India have issued an appeal to the central government not to cut the subsidy being paid to them for their inability to have access to natural gas in spite of converting their plants into gas operating entities.
The companies - the Mangalore Chemicals and Fertilizers Ltd (MCF) of Mangalore; the Tuticorn-based Southern Petrochemical Industries Corporation (SPIC) and the Chennai-based Madras Fertilizers Ltd. - have said that if the Centre goes ahead with this decision to end subsidies from October 1 this year, it could directly or indirectly affect the jobs of more than 15,000 employees. In particular, over 2000 families will be directly or indirectly affected by the closure of the MCF if it is declared sick.
The total annual naptha-based urea production capacity of these three plants is around 15 lakh tons, of which MCF accounts for four lakh tons, and if central subsidies are stopped, urea would necessarily have to be imported at internationally high prices, which would be contrary to the NDA Government's signature "Make in India" initiative as articulated by Prime Minister Narendra Modi during his first Independence Day address to the nation on August 15.
The Mangalore-based MCF has been operating in Karnataka for the past 38 years, and contends that it and the other two firms should not be penalized for following Government of India (GOI) directives since 2007.
The company, which annually produces 3.8 lakh tons of urea based on naphtha as feedstock, and has been receiving government subsidy (the difference between selling and retention prices) till date, says that it has spent Rs.305 crores to switch/convert the urea manufacturing plant from a naptha feedstock-based one to a natural gas feedstock-based one.
Stating that it has completed the natural gas conversion project in June 2014 and has signed a gas supply agreement with the Gas Authority of India Limited (GAIL) as far back as in February 2011, the MCF management maintains that it is the centre's responsibility to provide the pipeline for transmission of natural gas to the urea plant.
Natural gas is expected to be supplied through the proposed Petronet LNG (liquefied natural gas) terminal at Kochi. While the terminal has been commissioned in 2013, only ten kilometers of the pipeline has been completed so far, and a further 380-kilometers of pipeline needs to be laid.
According to MCF sources, GAIL has told them that they have not received permission to lay/extend the pipeline towards Mangalore because of "right of way" issues.
Apart from directly and indirectly affecting the livelihood of over 15,000 employees, the delay in extending the proposed pipeline will come in the way of the NDA Government's desire for greater indigenous manufacturing; affect urea supply to farmers during the Kharif and Rabi seasons; additional volumes of costly imported urea will severely impact an already congested port and railway logistics and infrastructure; higher subsidy pay-outs as a result of non-availability or inadequate allocation of natural gas prices for which is controlled by the government as opposed to naptha price which has been decontrolled since 1998.
Prime Minister Modi is set to unveil this "Make in India" initiative on September 25 with several proposals designed to get foreign companies to set up shop and make the country a manufacturing power house.
The "Make in India" programme is expected to lay emphasis on 25 sectors with focus on job creation and skill enhancement.
The three firms are of the view that an over dependence on imported urea would be contradictory to the NDA regime's "Make in India" policy. They have requested the government that they be allowed to continue urea production by using naptha supplied at export parity price (EPP) or refinery transfer price (RTP) till natural gas connectivity is provided at the respective plant locations.
India currently ranks 134 out of 189 countries in the World Bank's ease of doing business index in 2014.
Till now, investors have been left frustrated by rigid labour laws, corruption and inconsistent application of rules.
