GAIL yet to recover unpaid Rs1200cr from NFCL
GAIL will find it difficult to recover outstanding money from Kakinada-based Nagarjuna Fertilizers and Chemicals (NFCL), whose assets were sold last month (July 2024).
AM Green, a subsidiary of Hyderabad-based renewable energy group Greenko, won the NFCL assets by bidding Rs1685cr ($210m) during an auction held by bad loan aggregator Acre ARC, which bought NFCL's debt for Rs896cr ($112m) in March 2023 from a seven-bank consortium owed Rs3857cr ($482m). A gas sector source says this sale has jeopardised about Rs1200cr ($150m) owed by NFCL to GAIL for supplies of around 2.5m cm/d of domestic APM gas and R-LNG for 2023-24 and part of 2024-25.
Gas is NFCL's feedstock for producing urea fertiliser. "The new owners have bought NFCL, clear of debts," stresses a source.
"GAIL is highly unlikely to recover its money." GAIL cut gas supplies to NFCL in June 2024 after one week's notice.
GAIL also explored legally stopping the sale to AM Green by trying to enforce its claim on NFCL's land. But this fizzled out when GAIL discovered that NFCL did not entirely own the land.
NFCL countered by claiming about Rs1500cr ($187m) from GAIL for losses caused by gas supply disruptions after GAIL's Tatipaka pipeline burst in 2014-15. The government subsidises gas-based urea producers like NFCL for the difference in urea's (high) production cost and its (low) retail price to farmers.
However, subsidies for using R-LNG as feedstock are conditional on each fertiliser unit meeting the energy efficiency parameter of 5.5 Giga calories/tonne of urea produced, set by the government's Department of Fertilisers. The government penalises defaulting urea producers.
Yet GAIL allegedly began supplies of R-LNG to NFCL in 2019-20 despite NFCL not meeting the efficiency parameter. Some ask why GAIL began R-LNG supplies to NFCL when no other gas supplier was willing.
A source claims that GAIL's marketing division, in an agenda note to the company's board on marketing debts, didn't fully disclose the details of this transaction with NFCL. GAIL did not respond to a detailed email.