Madras Fertiliser Ltd and National Petroleum Company are planning to float a joint venture to run and manage a phosphoric acid plant at Razi in Iran. The phosphoric acid produced will be supplied to Madras Fertiliser Ltd for use in India.
NPC, a subsidiary of the National Iranian Oil Company, has 25.77 per cent equity hold in MFL. The loss-making MFL is also planning to switch to natural gas from naphtha for feedstock. The switchover has become a possibility after the revamp of the MFL plants.
MFL completed a major revamp/expansion of its ammonia, urea and NPK plants in 1998 at a cost of Rs 601.43 crore (Rs 6.01 billion), enhancing the annual installed capacity to 254,000 tonnes of nitrogen and 143,000 tonnes of potassium.
Officials said the company was keen to make the change but a lot depended on the availability of liquefied natural gas from the proposed LNG terminal of Indian Oil Corporation at Ennore near Chennai.
The change in feedstock was being contemplated as it could help the company substantially cut down the cost of urea production. This could obviate the need for the government to extend to it outlier benefit.
The department of fertiliser had proposed the enhancement of outlier benefit under the new pricing scheme from the normal 50 per cent to 70 per cent from 2003-4 to 2005-06 as part of restructuring of the company.
The finance ministry objected to the proposal since it felt it would have a higher subsidy implication and would set a wrong precedent for other urea units.
The DoF worked out a restructuring package for the company based on the recommendations of the Board for Restructuring of Public Sector Enterprises. MFL, the largest producer of urea in southern India, had accumulated losses to the tune of Rs 267.18 crore (Rs 2.67 billion) by March 31, 2005, which included a loss of Rs 58.39 crore (Rs 583.9 million) during 2004-05 and a cash loss of Rs 8.97 crore (Rs 89.7 million).
The DoF proposed the restructuring package for the company since it felt that its closure would entail an expenditure of Rs 616 crore (Rs 6.16 billion) which would be much more than the restructuring cost the government would have to bear.