Fauji Fertilizer Company plans to set foot in Tanzania

Will set up production unit; decision motivated by gas shortage in Pakistan

KARACHI:

Fauji Fertilizer Company (FFC) said that the company is going to invest in a joint venture operation to set up a new fertiliser plant in Tanzania, according to a company notice sent to the Karachi Stock Exchange (KSE).

The company’s board of directors has approved an equity participation in a joint venture company to be incorporated in Tanzania for the purpose of setting up a production unit.



“The consortium partners include Ferrostaal Industrial Projects Gmbh (FIP) and Haldor Topsoe A/S (HTAS) through a wholly owned offshore special purpose vehicle (SPV) to be incorporated outside Pakistan at an appropriate location,” the notice said.

Analysts say the company has been looking to diversify its operations for some time now but had been facing continuous problems in Pakistan.

Tanzania was a good option because of the abundance of gas in the country. Additionally, the fact that it is primarily an agriculture industry also helped cement the decision.

“Urea makers are facing serious shortages of gas in Pakistan, which is the main raw material of urea manufacturing. In such a situation, it makes sense for FFC to go for diversification outside Pakistan,” Sherman Securities analyst Saqib Hussain Khan told The Express Tribune.



Bleak future

The problems of urea companies are going to multiply in the next few weeks because the Rabi season has already started and they have not reached an understanding with the government on the urea price mechanism, Khan added.

He also said that the sales of both FFC and Engro Fertilizer are on a decline.

While di-ammonium Phosphate (DAP) sales are expected to increase after the government subsidy of Rs500 per 50 kg bag in October, urea price mechanism’s fate is still undecided.

Resultantly, farmers are waiting for an expected decline in urea prices due to which they have delayed purchasing the fertiliser.



The government has been asking the companies to reduce urea prices by Rs160 per 50kg bag, but fertiliser companies are demanding to revert back to the increase in feed gas price so that they can decrease urea prices.

Urea offtake will again take a hit in October 2015 due to its price ambiguity. Urea sales during the October 2015 are likely to remain at 128,000 tons versus 193,000 tons last month, down 34% month-on -month, Sherman Securities said in its recent report while quoting industry officials.

The sales of Engro fertilizer during September 2015 are expected to decline by 75% month-on- month to 15,000 tons, while sales of FFC are to reduce by 39% month -on-month to approximately 45,000 tons.

These figures are significantly lower than average calendar year 2015 monthly sales of 144,000 tons and 188,000 tons, respectively, the report added.

Published in The Express Tribune, November 5^th, 2015.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.