Gujarat Fertilisers wants subsidy in cash, not bonds

September 26th, 2008 - 5:29 pm ICT by IANS  

Ahmedabad, Sep 26 (IANS) Hit by a steep hike in raw material prices, the state-run Gujarat State Fertilisers and Chemicals Ltd (GSFC) now wants the central government to reimburse fertiliser subsidy in cash, not in bonds.According to GSFC’s annual report for 2007-08, the hike in raw material prices has put tremendous pressure on cost of production and margins. The feedstock price is expected to increase substantially and its availability is also uncertain.

“Good rains and timely reimbursement of subsidy in cash is necessary for the company to sustain its operations, otherwise it will be difficult for GSFC to maintain its profit levels,” the report said.

Despite these concerns, GSFC is seeking shareholders’ approval to pay 30 percent of the profit before tax of Rs.4.98 billion to the Gujarat State Economic Development Society (GSEDS) as directed by the state government.

The funds will be utilised for executing welfare programmes for the economically weaker sections of society.

By adopting this stand, GSFC management has tacitly implied the payment of part of the subsidy in bonds would not help the company, especially in raising funds to meet the working capital needs.

In February, the finance ministry announced the issuance of special bonds valued at Rs.36.1 billion for 23 fertiliser companies. The bonds were issued as compensation towards subsidy during the last fiscal. The special bonds will mature in 2026.

But apparently, the bonds did not help GSFC.

“The company received special bonds-2023 worth Rs.2.17 billion in 2007-08 carrying an interest rate of 8.3 percent, which were sold at a loss of Rs.91 million,” the GSFC report said.

“The company has further received another tranche of special bonds-2026 worth Rs.760 million. The company is carrying these bonds as current investment as on March 31, 2008 and has made provision of Rs.52 million,” it added.

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