IN a major setback to the government’s programme to restructure ailing PSUs, the finance ministry has rejected a proposal to give financial assistance to revive Madras Fertilizer (MFL). MFL is one of several PSUs seeking funds from the government.
“The finance ministry is not in favour of providing additional working capital to MFL in the light of the precarious financial condition of the company. The decision could set a precedent denying financial assistance even to revivable PSUs that have been identified by the department of public enterprises,” an official source said.
In the case of MFL, the finance ministry’s stand could mean virtual closure of the company that has been reeling under severe losses for the past few years. The restructuring package for the company was finalised by department of fertiliser (DoF) and sent to the Cabinet Committee on Economic Affairs (CCEA) for approval. The CCEA, however, has now returned the Cabinet note asking them to revise the note in the light of the finance ministry’s stand.
“Since the department of expenditure (DoE) and the planning commission have strong reservations, DoF may hold further inter-ministerial consultations and revise their note,” CCEA said while sending back the proposal.
Restructuring proposal of the sick public sector company included cash assistance of about Rs 500 crore and providing additional working capital for its revival. However, the department of banking ruled out any possibility of providing additional working capital.
MFL has got accumulated losses of Rs 513.7 crore which may go up to Rs 665.57 crore by the end of the fiscal 2007-08. The paid-up capital of the company is Rs 161 crore.
DoF has also asked for loan and interest waiver amounting to about Rs 350 crore. DoE, however, is not ready for any such measures. It has recommended that aid may be provided to the company up to March 2008 to save it from closure. DoE has also asked the need for constituting a study under a consultant to devise a proper restructuring framework.
MFL is incurring huge losses mainly on account of under recoveries because of subsidised sale of urea and complex fertiliser NPK. While the company is incurring a loss of Rs 3,100 per tonne on the sale of urea, the same is Rs 1,500 in case of NPK.
DoF, meanwhile, seems to be in no mood to let the company go for closure. “We are in the process of revising the financial restructuring proposal and would soon send it again for the Cabinet’s consideration,” an official said.
MFL is a joint venture company between the government of India and National Iranian Oil Company (NIOC), an undertaking of the government of Iran