KARACHI: Engro Corporation’s flagship fertiliser plant, built at a cost of over $1 billion, has remained shut for half of the time since its inauguration in January.
“When the agreement was signed with the government in 2006, we could not imagine that the supply of our basic raw material will be stopped,” said Khalid Mir, Vice President Marketing at Engro. “This is the first time in 50 years that government has turned back on its commitment with us.”
Engro has seen recurring disruptions in supply of gas to its new fertiliser plant, which has a capacity to produce 1.3 million tons of urea a year, an addition that has made Pakistan self-sufficient in soil fertiliser.
An energy crisis in the country has forced the authorities to reduce gas supply to fertiliser plants to divert it to power plants, textile factories and households.
“When the agreement was signed with the government in 2006, we could not imagine that the supply of our basic raw material will be stopped,” said Khalid Mir, Vice President Marketing at Engro. “This is the first time in 50 years that government has turned back on its commitment with us.”
Engro has seen recurring disruptions in supply of gas to its new fertiliser plant, which has a capacity to produce 1.3 million tons of urea a year, an addition that has made Pakistan self-sufficient in soil fertiliser.
An energy crisis in the country has forced the authorities to reduce gas supply to fertiliser plants to divert it to power plants, textile factories and households.
Gas, chemically known as methane, is the basic ingredient to make ammonia, which is mixed with carbon dioxide to make urea. Without gas there is no way of making fertiliser.
Plant Production Manager Mudasir Rathore said that the plant has not been built to handle sudden closure of gas supply. “These plants are designed to run non-stop for three years at a stretch. Life of our equipment and machinery has been reduced by a year because of abrupt cuts.”
Engro’s new plant Enven, along with Pak-Arab Fertilizer, Dawood Hercules, Fauji Fertilizer Bin Qasim and Agritech, rely on Sui Northern Gas Pipelines Limited (SNGPL).
The gap in gas supply and demand has risen to over one billion cubic feet per day (BCFD) over the last five years as production remains stagnant at 4.2 BCFD.
Mir said that the sovereign agreement with the government ensures the plant 100 million cubic feet per day (MMCFD) of gas. “SNGPL is bound to follow the contract. Unfortunately that is not being done.”
The company has taken the case to court, but Mir insists that the government is holding all the cards and legal battle will not be of any benefit.
Pakistan’s annual demand for fertiliser stands at 6.9 million tons against total installed capacity of 6.3 million tons. But gas outages mean the local plants will produce 4.9 million tons this year and 1.5 million tons will have to be imported, he said.
“Everyone must realise that giving gas to fertiliser companies makes better economic sense than running power plants on it. Power plants have an alternative, which is furnace oil.”
The cash-strapped government depends on Pakistan State Oil (PSO) to import fuel for power producers. But the crippling inter-corporate circular debt has brought PSO on the verge of default on import payments more than once.
Engro has been increasing the price of fertiliser to make up for the production loss at its new plant, Mir said. “We can’t help it. We have to pay off billions of rupees of loans and that’s the only way to keep the revenue stream running.”
In the last two years, fertiliser price has increased to Rs1,700 per bag from just Rs800. The government subsidises gas which is used in making fertiliser.
“Even if the government removes all subsidies, the price of fertiliser will rise only by Rs380 per bag. The cost of imported fertiliser is Rs3,000 per bag. That is the point we want to make. Can farmers afford to pay this much money?” Mir said.
Engro officials said that the corporation’s other projects also face problems because of the government’s failure to meet its commitments. “International lenders who have invested in the project wonít take risk with other investments in the country.”
Plant Production Manager Mudasir Rathore said that the plant has not been built to handle sudden closure of gas supply. “These plants are designed to run non-stop for three years at a stretch. Life of our equipment and machinery has been reduced by a year because of abrupt cuts.”
Engro’s new plant Enven, along with Pak-Arab Fertilizer, Dawood Hercules, Fauji Fertilizer Bin Qasim and Agritech, rely on Sui Northern Gas Pipelines Limited (SNGPL).
The gap in gas supply and demand has risen to over one billion cubic feet per day (BCFD) over the last five years as production remains stagnant at 4.2 BCFD.
Mir said that the sovereign agreement with the government ensures the plant 100 million cubic feet per day (MMCFD) of gas. “SNGPL is bound to follow the contract. Unfortunately that is not being done.”
The company has taken the case to court, but Mir insists that the government is holding all the cards and legal battle will not be of any benefit.
Pakistan’s annual demand for fertiliser stands at 6.9 million tons against total installed capacity of 6.3 million tons. But gas outages mean the local plants will produce 4.9 million tons this year and 1.5 million tons will have to be imported, he said.
“Everyone must realise that giving gas to fertiliser companies makes better economic sense than running power plants on it. Power plants have an alternative, which is furnace oil.”
The cash-strapped government depends on Pakistan State Oil (PSO) to import fuel for power producers. But the crippling inter-corporate circular debt has brought PSO on the verge of default on import payments more than once.
Engro has been increasing the price of fertiliser to make up for the production loss at its new plant, Mir said. “We can’t help it. We have to pay off billions of rupees of loans and that’s the only way to keep the revenue stream running.”
In the last two years, fertiliser price has increased to Rs1,700 per bag from just Rs800. The government subsidises gas which is used in making fertiliser.
“Even if the government removes all subsidies, the price of fertiliser will rise only by Rs380 per bag. The cost of imported fertiliser is Rs3,000 per bag. That is the point we want to make. Can farmers afford to pay this much money?” Mir said.
Engro officials said that the corporation’s other projects also face problems because of the government’s failure to meet its commitments. “International lenders who have invested in the project wonít take risk with other investments in the country.”
The News International ....Oct 08,2011.