Absence of gas: Engro claims Rs34 billion in damages from public utility
Enven fertiliser plant has not received gas since April last year.
Engro’s Enven is the world’s largest single-train, ammonia-urea plant in Deharki, Sindh, with a production capacity of 1.3 million tons per annum. PHOTO: FILE
ISLAMABAD:
Engro Corporation has claimed Rs34 billion in damages from Sui Northern Gas Pipelines Limited (SNGPL) for breach of sovereign contract promising supply of gas to the diversified conglomerate’s fertiliser plant.
Talking to The Express Tribune, Engro President and Chief Executive Officer Muhammad Aliuddin Ansari said Engro’s $1.1 billion fertiliser plant in Deharki had not received gas since April last year and this came despite a high court’s decision in favour of the company.
According to him, the damages amounted to Rs28.85 billion for the period January 2011 to June 2012, which went up and reached Rs34 billion by now.
“We told the government that we can reduce fertiliser prices if gas supply is resumed, but the government instead preferred import of the commodity rather than providing gas,” he said.
Ansari claimed that the government had spent $1 billion on fertiliser imports in a year, besides a subsidy of Rs50 billion on sales.
“Now the question before the government is whether it has another $1 billion this year too for fertiliser import at a time when balance of payments is under pressure,” he asked.
He hit out at the Ministry of Water and Power for what he called being a big hurdle in the way of gas supply to the fertiliser industry. “Gas from Kandhkot field can be provided to the industry, but the ministry is not willing,” he said.
Even the Ministry of Petroleum and Natural Resources had asked the Economic Coordination Committee (ECC) of the cabinet to allocate gas from some small fields for fertiliser plants, but the power ministry objected to it.
“SNGPL’s failure to keep its word is discouraging investment in the country,” Ansari said and warned that if his company went down, banks would also take a hit.
He was referring to $770 million which Engro had borrowed from local and international financial institutions.
Ceding some ground, he said Engro was willing to share gas outages by operating its fertiliser plant at 80% capacity if gas supply was restored.
The government had picked Engro through an international bidding for establishing a fertiliser plant to meet the country’s urea needs and save expenses on imports.
If urea demand is met through domestic sources, the country can save Rs22 billion in subsidies and Rs43 billion in imports every year.
The petroleum ministry, in its plan tabled before the ECC, had called for providing gas to the fertiliser plants immediately to avert a default on Rs150 billion worth of loans the industry was facing. However, the plan got stuck following opposition by the power ministry, which insists that power plants stand second in priority list after household consumers in terms of gas supply.
The petroleum ministry recommended that 60 million cubic feet per day (mmcfd) of gas, being supplied to Gas Turbine Power Stations (GTPS) on Wapda’s grid, should be diverted to Engro Fertilizers.
These power stations have not been consuming the full allocation of 200 mmcfd from Kandhkot gas field since April last year. Gas supply from the field could be enhanced to 225 mmcfd, which would be sufficient to make up for the diversion of 60 mmcfd to the fertiliser plants, officials of the petroleum ministry said.
According to estimates given by the fertiliser industry, lack of gas supply for four fertiliser plants has caused annual production losses of around 2.7 million tons of urea. In case the plants remain closed, the government will have to import urea, costing an estimated Rs140 billion. On these imports, subsidy burden will be Rs61 billion because of the commodity’s sales to farmers at prices matching those in the domestic market.
Published in The Express Tribune, January 19th, 2013.
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Engro Corporation has claimed Rs34 billion in damages from Sui Northern Gas Pipelines Limited (SNGPL) for breach of sovereign contract promising supply of gas to the diversified conglomerate’s fertiliser plant.
Talking to The Express Tribune, Engro President and Chief Executive Officer Muhammad Aliuddin Ansari said Engro’s $1.1 billion fertiliser plant in Deharki had not received gas since April last year and this came despite a high court’s decision in favour of the company.
According to him, the damages amounted to Rs28.85 billion for the period January 2011 to June 2012, which went up and reached Rs34 billion by now.
“We told the government that we can reduce fertiliser prices if gas supply is resumed, but the government instead preferred import of the commodity rather than providing gas,” he said.
Ansari claimed that the government had spent $1 billion on fertiliser imports in a year, besides a subsidy of Rs50 billion on sales.
“Now the question before the government is whether it has another $1 billion this year too for fertiliser import at a time when balance of payments is under pressure,” he asked.
He hit out at the Ministry of Water and Power for what he called being a big hurdle in the way of gas supply to the fertiliser industry. “Gas from Kandhkot field can be provided to the industry, but the ministry is not willing,” he said.
Even the Ministry of Petroleum and Natural Resources had asked the Economic Coordination Committee (ECC) of the cabinet to allocate gas from some small fields for fertiliser plants, but the power ministry objected to it.
“SNGPL’s failure to keep its word is discouraging investment in the country,” Ansari said and warned that if his company went down, banks would also take a hit.
He was referring to $770 million which Engro had borrowed from local and international financial institutions.
Ceding some ground, he said Engro was willing to share gas outages by operating its fertiliser plant at 80% capacity if gas supply was restored.
The government had picked Engro through an international bidding for establishing a fertiliser plant to meet the country’s urea needs and save expenses on imports.
If urea demand is met through domestic sources, the country can save Rs22 billion in subsidies and Rs43 billion in imports every year.
The petroleum ministry, in its plan tabled before the ECC, had called for providing gas to the fertiliser plants immediately to avert a default on Rs150 billion worth of loans the industry was facing. However, the plan got stuck following opposition by the power ministry, which insists that power plants stand second in priority list after household consumers in terms of gas supply.
The petroleum ministry recommended that 60 million cubic feet per day (mmcfd) of gas, being supplied to Gas Turbine Power Stations (GTPS) on Wapda’s grid, should be diverted to Engro Fertilizers.
These power stations have not been consuming the full allocation of 200 mmcfd from Kandhkot gas field since April last year. Gas supply from the field could be enhanced to 225 mmcfd, which would be sufficient to make up for the diversion of 60 mmcfd to the fertiliser plants, officials of the petroleum ministry said.
According to estimates given by the fertiliser industry, lack of gas supply for four fertiliser plants has caused annual production losses of around 2.7 million tons of urea. In case the plants remain closed, the government will have to import urea, costing an estimated Rs140 billion. On these imports, subsidy burden will be Rs61 billion because of the commodity’s sales to farmers at prices matching those in the domestic market.
Published in The Express Tribune, January 19th, 2013.
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