Govt weighs 60mmcfd gas supply to Engro Fertilizers

LAHORE: The Economic Coordination Committee (ECC) of the cabinet is consulting with the ministries to take a decision on 60 million metric cubic feet/day (mmcfd) of gas supply to Engro Fertilizers as the agreement with the company on a temporary supply expired in December last, sources said on Tuesday.

The sources added that the ECC is taking advices from the ministries of law and petroleum on whether to continue supplying 60mmcfd to Engro Fertilizers, the country’s second largest urea manufacturer with a 2.3 million production capacity.  

The government and the company reached an agreement on a temporary gas supply to its plant from Mari gas field in Balochistan till December 21, 2015.

The ECC, in its meeting in December 2014, diverted 60mmcfd gas from Guddu power plant to EFERT for one year due to installation of two gas boosters for 747MW Guddu thermal power plant.

A brokerage house report sees higher gross margins of Engro Fertilizers (EFERT) compared to its peers due to concessionary feed gas to its new plant.

“Government is still supplying gas [to EFERT] despite the fact that the agreement to provide temporary gas expired in December 2015,” said Tahir Saeed at Topline Securities, in a report. 

“Engro’s subsidiary EFERT in our base case is assumed to operate its EnVen plant in 2016 on concessionary (US$0.7/mmbtu) feed gas with old plant to remain closed. However, gas supply to old plant is a potential upside to our estimates,” said Saeed.

A source said the Ministry of Petroleum favours supplying 60mmcfd gas from Mari to Engro Fertilizers.

The source said the ECC has sought advice from the Ministry of Law on the proposal of the gas supply continuation.  Industry officials said FFC and Fatima are expecting the government to give them gas quotas. 

EFERT, FFC and Fatima account for more than 80 percent of the country’s urea production.

Industry officials said fertiliser manufacturers are using only 10 percent of the total gas produced in the country.

“The government should not disconnect gas to anyone of the economic sectors, including fertiliser, compressed natural gas and textile sectors,” the official said. 

“If the government provides fertiliser makers with the needed quantum of gas then it will save right away three billion dollars per annum that it spends on urea import.”

Additionally, he added that the government would save another Rs100 to 120 billion annually that it spends as subsidy to farmers on imported fertilisers.

Currently, Pakistan’s gas demand of six billion cubic feet/day outstrips the country’s total production by two billion cubic feet/day.