India may scrap AS subsidy to GSFC on extra payout claims

23 January 2012 15:11  [Source: ICIS news]

LONDON (ICIS)--The Indian government may scrap subsidy on ammonium sulphate (AS) fertilizers for Gujarat State Fertilizers & Chemicals (GSFC) on extra payout claims, an analyst from Sunidhi Securities and Finance said on Monday.

According to Tarun Surana from Sunidhi Securities and Finance, an officer from the Department of Finance (DoF) in Delhi had accused GSFC of not passing on the subsidy it received under the nutrient based subsidy (NBS) system to farmers for the fiscal year of 2011.

This came after GSFC announced gains of Rs 1.26bn ($25m) for 2011, deemed an extraordinary profit by the unnamed officer.

It is believed that GSFC will have to justify why it claimed the subsidy on AS sales in 2011 by clarifying its financial details during the fiscal year.

“The government has asked the company for details of its finances so it will all be under review now,” Surana added.

This suggests the DoF could proceed to recovering the extra subsidy paid to GSFC if justifications are deemed unsatisfactory, and/or stop paying AS subsidy to the company in future.

Under the NBS system, fertilizers with nitrogen (N) and sulphur (S) nutrients are subjected to subsidy payment. Domestic producers can hence claim a subsidy of Rs 5,195 for each tonne of AS they sell to Indian farmers, as one tonne of AS contains 21% of N and 24% of S.

GSFC has been a receiver of the subsidy since April 2010, when the scheme was introduced by the Indian government.

Some argued against the DoF official’s claims and cited that feedstock costs for ammonia and sulphur were higher in the fiscal year of 2011, which justified GSFC’s need for AS subsidy.

The maximum retail price for AS to farmers also dropped by Rs 2,550/tonne to Rs 7,800 during the fiscal year, according to Mr Surana. This implies GSFC had passed on the subsidies by reducing retail prices to farmers.

“In case [the] subsidy is removed, GSFC will start selling [AS] at higher retail price and recover the entire cost from farmers,” Mr Surana added.

The fiscal year of 2011 runs between April 2010 and March 2011.

GSFC was not immediately available for comment.

($1 = Rs 50.2)

For more on sulphur and ammonia visit ICIS pricing fertilizers

By: Freda Gordon
44 208 652 3214

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