Centre stops subsidised gas supply to Deepak Fertilisers

Move will make the firm’s takeover bid for MCFL more expensive.

By: ENS Economic Bureau | New Delhi | Published: May 15, 2014 1:23:42 am

The Centre has stopped supply of subsidised domestic natural gas to Deepak Fertilisers, saying that since the firm sold its products at market prices, the subsidy was not warranted.

The order could, however, increase the costs for the company when it is fighting a takeover battle for Vijay Mallya-owned Mangalore Chemicals & Fertilizers Limited (MCFL). The order was issued by the oil ministry on a request from the department of fertilizers. But the government has denied that its decision has anything to do with the corporate battle.

Pune-based Deepak Fertilisers will now have to instead source costlier LNG as fuel from Gail. The company, headed by Sailesh Mehta, is trying to acquire a majority stake in MCFL. Deepak Fertilisers owns a 25.3 per cent stake in the latter and has made an open offer for another 26 per cent. But to thwart the bid, MCFL, owned by United Breweries of Mallya, has got support from Kolkata-based industrialist Saroj Poddar, who also holds 16.43 per cent stake in it. The Mallya-Poddar camp, too, plans to acquire a majority stake in the firm, as per informed sources. The advantage for them is that Deepak Fertilisers’ open offer is priced on the lower side at Rs 61.75 a share, almost 14 per cent lower than the price at which MCFL’s scrip closed on Wednesday on the Bombay Stock Exchange.

A government source said its order was a follow through of an empowered group of ministers’ (EGoM) decision that was not implemented for 2 years. The EGoM, headed by then finance minister Pranab Mukherjee, had decided to cut subsidised gas to three fertiliser companies. Other than Deepak Fertilisers, these were state-owned RCF and Gujarat government-owned GNFC. But a few weeks ago minister for state (independent charge) Srikant Jena instructed his officials to implement the orders in respect of Deepak. The ministry had planned to approach the Cabinet, but Jena foreclosed the option and issued the instructions. Incidentally, while Mallya is a Rajya Sabha MP, Saroj Poddar is a scion of the Birla family.

The ministry issued an advance notice about its plans to cut supply to the listed company which appealed the decision in Delhi High Court. After the court refused a stay on the matter, the department of fertilizers issued the order. “Department of fertilizers vide letter dated May 1 has conveyed that maximum retail price for nitrogen, phosphorus and potassium (NPK) fertilisers under Nutrient Based Subsidy (NBS) scheme is free and the manufacturers of NPK can absorb the high cost of ammonia in the MRP, whereas the MRP of urea is fixed and statutorily controlled by the government,” the order noted.

Deepak Fertilisers produces only NPK whose price is deregulated whereas RCF and GNFC produce both urea, whose price is controlled by the government, and NPK. Government sources said this is the reason for the delay in taking a decision to cut back gas supply to them even as the economy faces an acute and rising shortfall in the supply of domestic gas as production at KG-D6 basin has declined.

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