The Centre is willing to continue providing subsidy for naphtha-based fertiliser plants, but on one condition — it wants State Governments to wave off their value-added tax.

Madras Fertilizers Ltd, Southern Petrochemical Industries Corporation Ltd (SPIC) and Mangalore Chemicals and Fertilizers stopped production of urea after the Centre discontinued subsidy for naphtha-based units from October 1.

The SPIC plant is located at Tuticorin, while Madras Fertilizers has its plant at Manali, near here.

The Government stopped subsidies because it wants these plants to shift to more cost-effective natural gas-based production of urea. The Union Ministry for Chemicals and Fertilisers had issued a directive earlier this year that naphtha-based units should shift to natural gas feedstock by June to be eligible for subsidy.

However, according to sources, the Centre has formulated a proposal, which was recently discussed in the Cabinet Committee on Economic Affairs, to enable the units to resume operations, provided the State governments waive the value-added tax.

Also, the supplier of naphtha, Chennai Petroleum Corporation Ltd, a subsidiary of Indian Oil Corporation, should supply the feedstock at export parity price, which is considerably cheaper than the domestic sales price.

Sources added both Madras Fertilizers and SPIC are ready to restart production within a few days of the proposal being finalised. However, they are awaiting the formal go-ahead from the Centre. Company officials are discussing with Chennai Petroleum regarding naphtha pricing.

While naphtha prices tend to fluctuate, a rough estimate is that at export parity, a tonne of naphtha will be about ₹10,000 cheaper.

Fertiliser companies paid up to ₹60,000 a tonne for naphtha, according to the sources.

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