GIDC: What will happen to the future cess rate, another big issue to take front seat

September 9, 2019 (MLN):  After the government’s decision to withdraw the GIDC ordinance 2019 and moved an application in Supreme court to settle the matter, another big issue that will take the front seat from here and keep stock prices under pressure until resolved is what will happen to the future cess rate, says a research report by EFG Hermes.

Earlier, the GoP promulgated the GIDC (amendment) ordinance 2019 last week, where it had announced two major measures for the fertilizer sector. First, it proposed the settlement of outstanding GIDC payables (players were required to pay 50% of the balance) – charged till Dec’18.

This came as a major positive, as not only was the residual 50% waived, but the govt. also proposed an adjustment to subsidy and general sales tax receivables. Secondly, the future cost of applicable cess rates was halved. But this was withdrawn by the Prime Minister following criticism over the hefty waiver offered to industries, said the report.

Now the matter is in Supreme Court and the decision could be in favor of the companies which could mean no payments to the government as opposed to the approx. Rs 220 bln that government would have collected under the deal it had offered to the industries through the ordinance.

Another possibility is that the court could either approve a partial payment that could result in a one-off payment of 50% of the total outstanding dues or the court could rule in favour of the government and the companies would be required to pay the total outstanding balance in full.

With regards to fertilizer sector, the withdrawal of GIDC (amendment) ordinance 2019 has cast a shadow of uncertainty over the sector once again, as the fertilizer stocks have remained in the limelight following the GIDC settlement discussion, because they were a significant beneficiary of the proposed measures.

Moreover, on the pricing front, the urea producers will gradually increase prices to make up for the higher gas tariff (effective Jul’19). Earlier, the producers held off passing on the incremental cost increase to consumers as the government restricted them from doing so whilst the GIDC discussions were ongoing, the report added.

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