Naphtha-based fertilizer units in a bind

A steep fall in prices of naphtha against natural gas has put three south-based fertilizer firms in a fix.

They are not quite sure if the Centre will permit them to use naphtha instead of natural gas for a longer period, especially since it has said that the subsidy for naphtha-based urea makers would come to an end on April 16.

The Centre is keen that they switch over to natural gas at the earliest to produce urea, to avoid huge forego by way of subsidy. The situation will turn for the worst for two of them — Madras Fertilizers Ltd. (MFL) and Southern Petrochemicals Industries Corporation (SPIC) — as they do not have access to natural gas till 2017.

Market sources said that the price difference between the naphtha and natural gas narrowed down to $1 from $3-4. Naphtha-based urea makers are seeking a blanket permission from the Centre to use naphtha as a feedstock for a longer period.

A top official of MFL said: “Last year, we were asked to switch over to natural gas as the cost of naphtha was high, and the Centre incurred huge expenditure by way of subsidy. But, in recent times, naphtha prices have fallen. We are unable to make use of the cost-advantage as the Centre is yet to spell out its decision on whether we will be allowed to operate the unit beyond April 16.”

Out of the 33 fertilizer firms in the country, MFL, SPIC and Mangalore Chemicals and Fertilizers Ltd. (MCFL) rely on naphtha as feedstock for the production of urea as they do not have connectivity to gas grid.

The Centre had asked these firms to switch over to natural gas by October 2014. As these firms were unable to meet the October-deadline, the Fertilizer Ministry stopped extending subsidy. This had resulted in closure of the firms. Following representation from the State government and urea makers, the Centre extended subsidy till April 16. Tamil Nadu Government, too, offered to forego VAT on naphtha.

“With the deadline fast approaching, we are back to square one. And, we are unable to make a long-term decision. Closure of the plant for a week and restarting it will cost around Rs.15 crore. Besides, it also affects the production schedule. Altogether, all the three plants in south produce roughly 1.5 million tonnes of urea,” another source said.

According to sources, IOC’s plan to set up LNG terminal at Ennore might not take off by 2017 due to technical problem. This would add to the woes of MFL and SPIC.

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Printable version | Feb 28, 2021 5:27:06 PM |

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