Engro Corporation does not see the gas crisis coming to an end in the near future and has called on the government to prepare a new exploration policy which could encourage extraction of local gas reserves.
Until gas shortages are eliminated, the government should allocate gas to different consumer segments in light of economic returns generated by them, said Engro Corporation President and CEO Asad Umar while responding to The Express Tribune queries. “Give maximum gas to those industries which create the most economic value for the economy,” added Umar.
A new Engro Fertiliser plant, the world’s largest ammonia-urea manufacturing plant with built-in capacity of 1.3 million tons, has been facing shortage of gas supply for more than three months. The plant is currently operating at approximately 80 per cent of capacity.
The government held an international bidding in 2006 for the allocation of 100 million cubic feet per day (mmcfd) of gas for a fertiliser plant, which was awarded to Engro. This was the first time in the country’s history that gas supply was obtained through bids.
“On the basis of this, the company made an investment of $1.05 billion, but the plant is getting only 80 per cent of the total gas allocation,” said Umar.
The gas supply is just above the minimum operating level as the plant cannot run below 70 mmcfd, according to InvestCap.
Engro’s $1.05 billion investment in the new plant is yet to aid the company in paying back the huge amount of debt it took for this expansion. The company’s total debt stands at an alarming Rs90 billion, according to InvestCap.
Local and foreign investors have recently offloaded their positions in the company’s stock, causing a drop of more than 13 per cent in June.
Umar is not alone in advocating better load management, other industrialists and energy experts have also been pressing the government to prefer the productive sectors in gas allocation instead of less productive sectors like CNG outlets.
The fertiliser sector consumes around 15 per cent of the country’s natural gas and is currently facing shortage of around 25 per cent (200 mmcfd) against an average daily demand of 800 mmcfd.
Engro’s new plant receives gas from the Sui network which is facing around 35 per cent shortage. “We recognise that there is an overall gas shortage in the country, therefore, we have done our utmost to cooperate with the government to ensure balancing the needs of various sectors,” said Umar.
However, running the fertiliser plant at a reduced load results in loss of efficiency and reduces the advantages of economies of scale.
On the question of more gas allocation to the fertiliser sector, Umar said that the corporation has been cooperating with the government to enable a rational gas load management plan which will allow high economic value activities like fertiliser production to continue with the minimum amount of limitation.
On the other hand, urea manufacturers have increased prices to avoid losses, citing low gas supply or its non-availability as the reason for the hike.
The country’s gas distribution network is shared by three companies – Sui Northern Gas Pipelines (SNGPL), Sui Southern Gas Company (SSGC) and Mari Gas with market share of 46 per cent, 29 per cent and 15 per cent, respectively. In addition, there are few exploration and production companies which directly supply gas to the power sector with a market share of 10 per cent.
Published in The Express Tribune, June 21st, 2011.
COMMENTS (13)
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I belong to Fertilizer Sector and want to share some important factors with you people; 1) We should encourage ENGRO as this is the only group in Pakistan who is investing in industry expansion. We need plenty of industrial units to compete with word’s growing economy whether it is Food, Fertilizer or any other industry. 2) Yes CNG consumption should be reduced. It should be kept in mind that CNG is directly related to our Poor brothers so a proper utilization/allocation should be implemented like CNG can be permitted upto 1000/1300 cc cars but not above that. Its just a example. (But I recently saw a Tender Notice from Punjab Government for 5000 CNG buses :( 3) As per today status, GOP is allowing gas for 15 days to 2 Fertilizer units and next 15 days to rest of 2 plants. it means half of the year plants will not have production, what will happen now??? put pay back feasibilities aside, it will directly impacting out Farmers and then to grain consumers as Urea will be short, Price will be getting higher and higher!! 4) We should turn of focus for gas exploration as there are several resources in Pakistan which still untouched, we need to go for alternate energy resources like Hydral/Solar and Wind ….
This is not for Engro or other industry, this is for all of us, if there is no power, no power source then there will be no industrial growth and with no industrial growth U cant stand in World!!!!! Recommend1. .
I think current gas crisis increased day by day more serious in country. Due to power shortage every common man use gas generator for power this generators are very inefficient result more gas consumption in country.
To keep it short, Engro has used taxpayer funds (subsidies) to invest in pet projects (foods) and generate shareholder value (at the cost of the taxpayer). Simple.
@Numan:
Dear Noman, your comments are fair but please keep in mind the following:
1)Yes, Engro is the only conglomerate of its kind in the country but do you think it makes good business sense to invest in all opportunities at the same time and end up as a jack of all and master of none? Secondly, the corporate disaster of Enron is known to all globally and Engro seems to be geared on the same lines.Please don't get me wrong, I am not making any kind of allegations but my point point is that there is a very thin line between ambition and obsession. To tell you the truth and correct me if I am wrong, out of many categories that Engro operates in within its various business units, I cannot think of one where it is the market leader. So is this industrial expansion just for name sake or is it geared by an obsession for so called" Corporate "gigantuanism". In this case Enron would be far fetched example. One must also recall the case of BCCI bank which had similar ambitions for growth but was eroded out of existence. Therefore we need growth there is no questions about that but it must be an offshoot of a sustainable strategy rather than pure and simple obsession and ambition. 2)I agree that CNG should not be commercialized in a fashion that GOP is currently pursuing and such a resource should be directed towards industrial expansion. 3)As for your point regarding import of fertilizer in the case the government supplies gas to plants on a 15 day basis "GOP is allowing gas for 15 days to 2 Fertilizer units and next 15 days to rest of 2 plants. it means half of the year plants will not have production...., it will directly be impacting out Farmers and then to grain consumers as Urea will be short, Price will be getting higher and higher!!". In this regard I would like to say that emphasis on Urea in Pakistan is overrated. Fertilizer companies with the help of GoP need to educate farmers about others varieties such as NPK and other combination fertilizer products. In my understanding the lack of education on ground level leads to an excessive demand for urea under all soil conditions and this is what causes the demand hype. Secondly, certain varieties of fertilizer such as DAP are imported exclusively or domestic production production is marginal at best. Therefore these may be exclusive of the case of gas shortage. In some cases even imported Urea costs cheaper than locally produced Urea or of the same price ever since the GoP removed the gas subsidy for fertilizer plants. Therefore there might be a problem in the short term but in the long term this is a manageable scenario. Most fertilizer companies are concerned about their ROI's and paybacks. The industry should focus on consolidation at this point which means pooling in resources to find out alternative resources and even mergers in some cases would be feasible options. The corporate agenda overrides good business sense in the industry. It is not that utility shortages including electricity and gas are a small issues but there are ways out if industries especially the fertilizer companies are willing to embrace the new era and move out of their comfort zones. 4) As for Pakistan's global existence, please note that the international community has too great a vested interested in Pakistan to let this land go to waste so the water is not as deep as we think and it is prudent to hope for the best at this point. The biggest reason for our state of affairs is that we as a country and as a community are pessimistic by nature (not that being overly optimistic and ambitious is justified) and this pessimism acts a self fulfilling prophecy on its own let alone other factors. I'll just leave it at that.
Sir,
Almost 80% Pakistanis are facing these shortages like Electric Gas and somewhere water, why multinational companies not find any substitute ways of energy like wind, seashore etc.,