The industry sources are foreseeing the average gas sale price to be set at $ 4.1 per mmbtu as the Ministry of Petroleum is said to have submitted its recommendations on the fertilizer sector’s gas requirement.
This price would be inclusive of the average sale price of $ 3.75/mmbtu along with $ 0.35/mmbtu that would be added as the average tolling charge by the gas utility company like the SNGP.
Quoting the industry sources, the analysts at Arif Habib Research Monday said the Ministry of Petroleum had recommended that Engro Fertilizer, Pak-Arab Fertilizer, Dawood Herculus Fertilizer and Agritech Limited would need 205mmcfd gas during the interim period. The source-wise breakup shows that of this total 130mmcfd would be provided from Kunar Pasaki Deep (KPD), 22mmcfd from Mari, 25mmcfd from Makori and 28mmcfd from other gas fields.
“The minimum time period expected would be around eight months,” they said.
About the impact of this development on Engro, the analyst said the current scenario placed Engro in between the devil and the deep blue sea, where Engro had been showing reluctance in finalizing the mentioned Gas Sale Agreement (GSA) due to agreement with the government for keeping the final feedstock price intact at $0.7/mmbtu. “By accepting the aforesaid GSA, the Engro’s urea production would be increased and, assuming 80 percent capacity utilization at current urea prices, it would be enough to pull EFERT’s bottom line out of the red zone, as we estimate an EPS of PKR 0.67 (at $ 4.1/mmbtu rate),” they said.
Further salvation, the market observers said, might come for EFERT if it paid only tolling charge (at $ 0.35/mmbtu) and received gas at subsidies rates ($ 0.7/mmbtu) as per initial agreement. This scenario yields an earning per share of Rs 5.18 for EFERT (for ENGRO: Rs 10.86), the analysts said.