Panel upset over gas being supplied to Engro

Govt is bound by sovereign guarantee agreement to supply 100mmcfd.

Zafar Bhutta July 29, 2011


A parliamentary panel has expressed displeasure at the government’s attempts to meet their contractual obligations to the Engro Corporation by supplying them with the quantity of natural gas required to run the company’s new fertiliser manufacturing plant.

Testifying before the petroleum and natural resources committee of the National Assembly, the acting chairman of the Oil and Gas Regulatory Authority (Ogra), Mansoor Muzaffar Ali said the gas shortage in Punjab was being exacerbated by the supply of 80 million cubic feet per day (mmcfd) of gas to the Engro Corporation’s fertiliser plant at Daharki, in Sindh.

Nearly all members of the committee seemed to feel that the gas load management programme – where the government rations the supply of gas between the major consumers – was being handled badly.

Engro has entered into a sovereign guarantee agreement with the government over the supply of gas to its new fertiliser plant, which is the largest single-train urea manufacturing facility in the world. Under the agreement, the state-owned Sui Northern Gas Pipelines is bound to supply 100 mmcfd of natural gas to the plant in Daharki. Ogra officials testified that the government would supply at least 60 mmcfd of Engro’s gas from the Sui Southern Gas Company’s system, cutting supplies for the Karachi Electric Supply Company.

In an analyst briefing on June 24, the company said that the sovereign guarantee entitles Engro to the first 100 mmcfd of gas produced at the Qadirpur gas field, one of the largest in the country.

Ogra officials, however, offered a slightly different account, claiming that Engro is only eligible to receive its full quota of gas if there is more natural gas available from other fields.

Both sides seem to be interpreting a Sindh High Court ruling which states that Engro is entitled to an uninterrupted supply of gas, except in the case of “force majeure”, which is taken to include any supply disruptions from the Zamzama or Sui gas fields.

Ogra officials implied that the gas being provided to Engro was in violation of decisions made the economic coordination committee (ECC) of the cabinet, a point at which most members of the parliamentary panel expressed their displeasure.

Mansoor Muzaffar Ali testified that gas production in the country had declined by 200 mmcfd, which he said meant that SNGP was no longer meant to supply gas to Engro at the same levels. A spokesperson for the company could not be immediately reached for comment.

Engro Corporation invested $1.1 billion setting up its new fertiliser plant, which was meant to help overcome the chronic urea shortage faced by the agriculture sector.

With additional input by Farooq Tirmizi in Karachi

Published in The Express Tribune, July 30th, 2011.


Taxed | 10 years ago | Reply

Moral of the story it is foolish to invest in Pakistan, other countries would make sure that such an investment is successful so they use it as example to entice others. The real losers are not Engro but the farmers of the country who being robbed by high urea prices.

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