Clearance Eludes Iffcos Nellore Urea Project

The finance ministry has scuttled Andhra Pradesh Chief Minister N Chandra Babu Naidus move to get clearance for the Indian Farmers Fertilisers Cooperatives (Iffco) Rs 1568-crore urea plant at Nellore.

Finance ministry officials have refused to present the proposal to the Cabinet Committee on Economic Affairs (CCEA) as they feel an investment of this magnitude can be cleared only by the new government.

Naidu, who is also the United Front convenor, had managed to get the approval of the Public Investment Board (PIB) for the controversial project last month, despite objections raised by the Planning Commission over its viability. The promoters had hoped that the proposal would be submitted to the CCEA before the elections and an approval obtained.

 

CCEA clearance could have proved to be advantageous for Naidus Telugu Desam Party at the hustings. The finance ministry, however, feels this could have been construed as a violation of the Election Commissions model code of conduct.

Earlier, the PIB had refused to clear the project on grounds of unviablity. As a result, Iffco altered the debt-equity ratio from the originally envisaged 1:1 to 2:1. At PIBs behest, the Iffco management also decided to reduce its dependence on market borrowings by increasing the share of internal accruals.

In September, 1997, the Planning Commission had objected to the proposal and termed it as a high-cost venture resulting in higher subsidy outgo. It felt that the subsidy outgo would be substantial as international prices were hovering around $80-85 per tonne (fob), while the projects production cost would be around $186 per tonne. Iffco has argued that the downtrend in urea prices is temporary and that once demand for fertiliser picks up, domestic prices would be comparable with international prices.

The Nellore project was mooted during the chairmanship of Ramachandran Reddy, a good friend of the then Prime Minister, P V Narasimha Rao.

The state government has already allotted 2776 acres of land near Nellore and confirmed the availability of water and power for the project.