Engro urges govt to import LNG

Company offers to reduce urea prices if gas supply is guaranteed.


Farhan Zaheer April 21, 2011

KARACHI:


Gas shortage in the country is hurting the fertiliser industry and poses a threat to the interest of foreign investors in significant projects, according to a top official of Engro Fertilisers.


Talking to The Express Tribune, Engro Fertilisers Vice President Khalid Mir said the government must import liquefied natural gas (LNG) even though it will be more expensive than local gas.

At a luncheon meeting on Thursday, he said, “Owing to better earnings, our growers can afford an increase in fertiliser prices. Expensive gas is better than no gas for the industry.”

He explained that farmers would rather use expensive urea than facing shortage which would reduce agricultural output. Urea prices have jumped to Rs1,235 per 50kg bag, from Rs850 four months ago.

Engro has offered to reduce urea prices if the government ensured consistent gas supply. “We can reduce prices if we run our plant round the year but shortage of gas is disturbing our output,” he added.

Engro has recommended to the government to withdraw the feed gas subsidy to the fertiliser sector, instead of incentives provided to new plants for a limited period.

Mir said that the company signed a contract with the government, as a result of which Sui Northern Gas Pipelines Limited (SNGPL) will supply 100 million cubic feet per day (mmcfd) of gas to the plant from the Qadirpur gas field, while in the event of a shortfall, SNGPL will provide gas from elsewhere within its network.

Engro set up an expansion plant in response to open government bidding between local and international competitors. Engro invested $1.1 billion, the biggest industrial investment by a Pakistani company, which was raised through investments from International Finance Corporation (IFC), local banks and international institutions.

Engro officials believe that if gas supply was ensured to the top fertiliser plants, the country would not face the need to import urea and would save up to $350 million annually. If projects remain inactive due to gas shortage, attracting foreign investment will become extremely difficult in the long run.

They informed that Engro has invested Rs130 billion over the last five years, adding that the country would need assistance of international investors, such as the World Bank, to finance projects like Thar coal, due to an incapable local banking system.

JS Global Capital analyst Atif Zafar said that rising urea prices would reduce consumption and ultimately lead to lower agricultural output. He said the country will need to import urea in bulk and provide subsidy, creating problems for the cash-starved government.

Published in The Express Tribune, April 22nd, 2011.

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