ISLAMABAD, Dec 11: The government on Monday allotted 100 million cubic feet of gas per day from the Qadirpur gas field in Sindh to the Engro Chemicals Private Limited at Rs101 million premium bid on a single offer basis to set up a modern urea fertilizer plant.
The three other pre-qualified bidders of international repute were, however, conspicuous by their absence although they remained on board until two days before the bidding.
They included International Petroleum Investment Company (IPIC) of Abu Dhabi (a company that also plans to set up a $3-4 billion oil refinery at Khalifa Point), Orascom Construction Company Limited and Fauji Fertilizer Limited.
Minister for Industries Jahangir Khan Tarin, who administered the bidding, told Dawn that the process was held in a transparent manner, and he was satisfied with the outcome and hence approved the bidding results.
The results would be formally cleared by a secretaries committee headed by the advisor to the prime minister for finance, Dr Salman Shah, before formal approval by the Economic Coordination Committee of the cabinet.
The urea plant would be set up with an estimated cost of $1 billion with a production capacity of 1.3 million tons per annum. Now the Sui Northern Gas Pipeline Limited (SNGPL) and Engro Chemicals would sign a gas sale agreement for 20 years from the commissioning of the project.
The ECC had approved gas price of 70 cents per MMBTU for the fertilizer plant for 10 years to be started from the commissioning of the project.
The sources said pre-qualified bidders had doubts pertaining to the life of well, quality and pressure of gas, but the ministry claimed that those were not serious parties.
Mr Tarin, however, explained that Orascom Construction had lost interest in the project after pre-qualification and had formally said so almost 10 days before the bidding.
He said he himself held detailed discussions with all the pre-qualified bidders and took a decision with consensus to hold bidding three weeks after the finalization of bid documents and provided sufficient time to the SNGPL and the bidders to discuss modalities and legalities.
For example, he said the Qadirpur’s original agreement with the SNGPL envisaged maximum closure of supplies for 240 hours per year, but did not talk about the number of disruptions and their duration, which was a big question mark for an investment of $1 billion in a fertilizer plant that required very predictable supplies.
So it was decided to limit the disruptions to six times a year for a maximum of 20 days each. This, he said, was acceptable to all the bidders. However, the IPIC of UAE came up with a request just a couple of days before the scheduled bidding to postpone the bidding event until March 31 because a big investment was involved.
Mr Tarin said he took a strong position and declined the request from IPIC because the bidding date was finalized after their input. Moreover, there was no guarantee if the IPIC would still be interested in the project after four months.
About the third bidder, Fauji Feritiliser, which is an indirect commercial arm of the armed forces personnel, the minister said their board of directors took a decision in the last moment that $1 billion fertilizer plant at Qadirpur was too big a project to be implemented under their existing scheme of investments because of their projects in progress abroad.
"So we were left with the single bidder. It is better to have one bidder than none at all," he said and added even the single bid was a premium, which came from a local quality player and would not impact the gas price that would remain applicable without any favour or discrimination.
He reminded that gas allocation for fertilizer plants used to be made on the basis of "first-come-first served basis" or on single application basis and it was for the first time that a premium has been secured which is a new phenomenon.
Besides, he said, a very strict compliance schedule has been put in place. The company would be required to sign a formal gas sales agreement with the SNGPL within three months and announce financial close in another six months. From financial close onwards, the company would be required to start commercial operations within 36 months.
He said even the production capacity of the Engro Chemical would be higher than envisaged under the government's scheme with the same quantity of gas. The government was expecting one million tons of urea production with 100 MMCFD of gas while Engro will produce 1.3 million tons.
