Tripartite deal between EFERT, SNGPL and Mari: Ogra clears $0.7 concessionary price for Engro's EnVen plant

Engro Fertilisers (EFERT) must be comforted with the fact that it has finally got the federal government honour its commitment of ensuring the supply of cheaper gas to its new but energy-scarce urea plant at Dharki. The 1.3 million tons EnVen plant was built by the business conglomerate as an expansion to its existing production units at a cost of $1.1 billion, which officials at EFERT rate as largest private sector investment in Pakistan.
Commissioned in the same year, the plant, however, managed to have gas only for 190 days during 2011. The following year, 2012, was even worse with the plant only getting the fuel for 44 days. The EFERT management has long been running from pillar to post to keep the wheel of its capital-intensive urea production facility running. To this end, the company held interminable dialogue sessions with the concerned stakeholders, particularly the government, and also had to get its loan rescheduled from its lenders.
While many of its proposals were turned down, the government in January 2014 finally agreed to Engro's suggestion that EnVen should be supplied gas on concessionary rate form Mari gas fields. The Economic Co-ordination Committee (ECC) of the federal cabinet then had given a green signal to Sui Northern Gas Pipelines Limited (SNGPL), Mari Petroleum Company Limited (Mari) and EFERT to enter into a "novation agreement".
The tripartite deal envisages the supply of feed gas to EFERT's troubled plant at a concessionary price of $0.7 per mmbtu. After it was finalised by the three sides, the agreement was submitted to Ogra for a regulatory approval. "Ogra has now approved the terms of the agreement and the company is working with SNGPL and Mari to start implementation at the earliest," said a notice the company shared with its shareholders at the country's three stock exchanges in Karachi, Lahore and Islamabad.
According to a company official, while the ECC had cleared the agreement in January last year its execution got delayed because of the parties working on the same. Also, the ECC, in its February 28th meeting, okayed the supply of 3 mmscfd of gas to Engro's urea plant from the Maru East field. The supply of 3 mmscfd, the analysts believe, was expected to enhance the plant's production by 14,000 tons.
Commenting on the impact, officials at EFERT said the development would prove to be a great encouragement for the investors as the federal government had respected its commitment. The good news reflected on the listed company at Karachi stocks market where EFERT was seen finding 5th slot among the day's top 10 best performers on Monday. The stock was traded by 8.52 million shares. "We estimate additional gas is likely to have an annualised earnings impact of Rs 0.05 per share for EFERT," viewed Umair Vayani of JS Research.