U-turn: Engro takes back urea price increase

Govt to work on long-term supply of gas to the company’s Deharki plant.

KARACHI:

Engro Fertilizers has rolled back the recent increase in urea price following government’s assurances that gas needs of the company’s large Deharki plant will be met.

Engro on Wednesday wrote a letter to the Karachi Stock Exchange, disclosing “the government and Engro had discussed the issue of gas shortage. The government will work towards implementing long-term and sustainable provision of gas supply to the company.”

The letter also said the excise department had taken off its employees from the Deharki plant, who were deployed on Monday night to block urea supply.

“Consequently, as a gesture of goodwill, the company has rolled back its latest price increase announced on October 30, 2011,” the letter said.

With a market share of around 20 per cent, Engro had pushed up prices by Rs400 to Rs1,980 per 50kg bag on the grounds that the government was not supplying adequate gas even after court orders in this connection.

Engro won the case in the Sindh High Court on October 18 in which the court ordered the government to provide 100 million cubic feet of gas per day (mmcfd) to Engro’s new plant. To defend itself, the government argued it did not have enough gas to meet the demand of fertiliser companies.

However, after the withdrawal, the price has come back to Rs1,580 per bag. The company had increased urea prices five times (excluding the impact of sales tax and fuel price revisions) in 2011 due to gas curtailment and other issues. The last price hike was the highest.

Although Engro’s letter did not mention the timeframe for restoration of gas supply, some media reports suggested that the government would resume supplies in three days.

The fertiliser sector has shown impressive performance this year. In the first nine months of 2011, Engro sold 954,000 tons of fertiliser, winning a 23 per cent market share compared to 15 per cent in the same period of 2010. The company made a net profit of Rs3,510 million for the nine months ended September 30, 2011, as compared to a profit of Rs2,879 million for the same period last year.

Engro management says gas supply to its Daharki facility, built at a cost of $1.1 billion and having production capacity of 1.3 million tons of urea, has remained suspended since the start of October.

Despite suffering for a year, Engro Fertilizers says it has remained very actively engaged with the government to find solutions to the shortages and has proposed solutions not only for the fertiliser industry but for the country as a whole.

Correction: An earlier version of the story misspelt Daharki as Deherki. The correction has been made.

Published in The Express Tribune, November 3^rd, 2011.