Engro Fertilizers has approached banks to “re-profile” its debt and extend the loan repayment dates by about two and a half years, as the company is trying to reach an agreement with the government to shift its $1.1 billion Enven fertiliser plant from the Sui Northern Gas Pipelines Limited (SNGPL) network to non-network gas fields.
Engro Fertilizers – part of Pakistan’s largest private-sector conglomerate Engro Corporation – has to make principal repayments of Rs10 billion and interest payments of Rs8 billion in 2012, Engro Corporation Chief Financial Officer (CFO) Naz Khan said on Thursday.
While ruling out market speculations that Engro Fertilizers may default on its debt repayments in the ongoing calendar year, Khan told The Express Tribune that gas curtailment at Enven had indeed hurt cash flows of Engro Fertilizers, which set up the world’s largest single-train urea plant in 2011 with total production capacity of 1.3 million tons a year.
“We’re running short of cash because the original debt repayment schedule was based on regular gas supplies of 100mmbtu from the SNGPL,” she said, adding that Enven received gas for only five and a half months last year. It has received gas for 44 days in 2012, of which production could take place for 33 days only, as the firing up and shutting down the plant takes considerable time.
Engro Fertilizers has made principal repayments and interest payments amounting to Rs26.5 billion in the last 18 months since Enven became operational.
She says she is optimistic that Engro Fertilizers will be able to strike a deal with the government to shift Enven to non-network gas fields within the next six months. Making arrangements for the treatment of low BTU gas, so that it can be used to produce urea, can take anywhere between six months and two years, Khan added.
“That’s the reason why we have approached banks to reschedule repayments for the interim period, which will be approximately two and a half years. About five payments totalling Rs28 billion are due every six months,” she said.
Engro Fertilizers was allocated 100 mmcfd of gas upon payment of a licence fee after an international competitive bidding conducted by the government. It also enjoys the SNGPL’s guarantee of uninterrupted gas supply with a right to have the first 100 mmcfd of gas production from Qadripur field.
Engro’s alternative non-network gas solution calls for shifting Enven from the Qadirpur field to Lateef and two other adjacent gas fields. Another suggestion that is part of Engro’s proposal is to shift gas supplies of the plant to Mari field which, like many other major gas fields, is located within 50km of Enven.
Khan took pains to explain that no Term Finance Certificate (TFC) repayments will be affected by the proposed restructuring of Engro Fertilizers’ long-term debt. “Engro Corporation has many subsidiaries, and there is no possibility of a default on payments whatsoever,” she said, adding that no major TFC repayments are due in the near future anyway.
“The problem with the fertiliser sector is that it doesn’t enjoy the political clout like the textile and many other lobbies do,” she said, while referring to the recurring gas curtailment problem that has affected the Enven plant since its inception.
Published in The Express Tribune, July 27th, 2012.