Advisor on Petroleum and Natural Resources has said government is studying a proposal to slap an equalisation tax on fertiliser plants running on gas in order to analyse the per bag rise in the prices of urea. Fertiliser company margins have shot up exorbitantly since urea bag prices have increased by more than 50 per cent this year thus, benefiting efficient players such as, Fauji Fertiliser Company (FFC) and new players like, FATIMA.
Some of the plants that resorted to increase urea prices include, Engro Fertiliser whose new plant got interrupted gas supplies from Qadirpur and did not receive designated 100mmcfd gas from Qadirpur throughout the year and hence, resulted in a shortfall in urea supplies.
Engro got enraged and reportedly increased the price of urea to Rs2,000 per 50kg bag, but was maneuvered back by government to keep the prices at an old rate of Rs1,580 per 50kg bag.
The rolling back of prices to nearly Rs1580 per 50kg is still high from local standards since these prices were around Rs1,200 per 50kg only a few months ago or at least at the start of the year. The question of putting equalisation tax may be for those plants that are not efficient users of gas supply. It is being reported that an efficient fertiliser plant produces 42 tonnes of urea by utilising one million cubic feet of gas per day whereas, there are few that are inefficient users and produce 38 tonnes with the same gas supply.
It has also been said that this arrangement would only be probable if plant audits are carried out (which may take some time). The matter is likely to be brought up by the advisor into Cabinet Committee of economic affairs called ECC.
Reportedly, 4 fertiliser plants, on the network of Sui Northern Gas Pipelines Limited, need 240 mmcfd, but they are currently getting 162 mmcfd thus, causing problems for Engro fertiliser and some other plants such as Agritect and Dawood Hercules. Faisal Shaji at SSC Trade said they consider CY11 EPS of preferred scripts such as, FFC and Fatima, and also like, Fauji Bin Qasim (yielding 5x) given intact margins on DAP fertilisers despite tight position of margins globally while FFBL is placed at a favourable position due to uninterrupted supply of raw material P2o5. ‘We signal cautious approach on Engro Corp since company is still not in a favourable position as far as reception of gas supplies is concerned. Pak Arab Fertilisers (not listed) situated at Multan is reportedly receiving prices. Arif Habib Corp (AHCL) has beneficial ownership in Pak Arab and hence, at a favourable situation,’ he added.