World’s largest single-train urea production plant is facing a serious financial crisis and gas curtailment has forced to reschedule its Rs65 billion debt payments. Industry sources told Business Recorder that gas curtailment to the fertiliser industry had resulted in massive financial burden on the government, besides resulting in losses running into billions of rupees on domestic urea plants.
“The gas curtailment to domestic urea plants has cost about $566 million on account of urea import during the current calendar year, besides increasing the losses of urea manufacturers,” they added.
Gas supply to four Sui Northern Gas Pipeline Limited (SNGPL) based fertilizer plants reduced substantially during this year against the already curtailed supplies in 2011. Therefore, even though there is a sufficient capacity in the country to meet the domestic demand, about 1.4 million tons of urea had to be imported during the year to fulfil local farmers’ need.
Although, all SNGPL-based fertilizer plants are suffering financial losses, however Engro’s losses are more than other plants. It has recently set up a new urea plant, the world’s largest single-train unit, at Daharki with a cost of $1.1 billion.
Engro’s Daharki plant commenced operation in January last year and was successfully commissioned in June last year. However, gas was not supplied to the plant in accordance with the agreement. Later, Engro moved court to get gas as per agreement.
Although Engro received a favourable judgement from Sindh High Court for restoration of its gas supply, the company received gas for just 45 days during 2012, which is effectively 10 percent of its contracted quantity, industry sources said.
This is also the least number of gas supply days of all fertiliser plants in the calendar year.
As a result, the company was forced to re-schedule its debt which currently stands at around Rs65 billion.
Regarding urea production, the most used fertiliser in the country, Dawood Hercules supplies 37,500 tons per month, consuming 39 MMSCFD gas whereas Pak Arab Fertilisers consumes up to 50MMSCFD gas and produces 7,000 tons of urea per month.
Fertiliser business already pushed Engro Corp in loss and as per financial results, Engro Corporation Limited posted a net loss of Rs2.978 billion during the nine months ended September 30 this year against a net profit of Rs3.51 billion during the same period last year
Engro’s urea plant has a total capacity of producing 1.3 million tons per annum, but uninterrupted supply of gas remains a major issue for the plant.
Engro won its gas allocation in 2006 in an open and transparent bidding process, and entered into gas supply contract with effectively a sovereign guarantee and an incentives gas price.
According to industry sources, while the project was being initiated, the government committed 100 million cubic feet per day (mmcfd) gas for the Daharki plant and after the government’s assurance of gas supply, Engro set up the plant with a production capacity of 3,850 tons per day.