960414

Bidding for Pak-Saudi Fertilizer

Experts see risks

in dispensing

with pre-qualification

RECORDER REPORT

KARACHI: Privatisation Commission decision not to pre-qualify bidders for Pak-Saudi Fertilizer could backfire with consequences in terms of food security as well as environmental hazards to life and property, say experts in the chemical industry.

Around 35 bidders have obtained tender documents from the commission for buying the fertilizer plant with 557,000 tons capacity and having a replacement value of around $500 million. Bids are scheduled for April 16, 1995.

Informed sources expect the bids to be in the range of Rs 85 to Rs 115 per share. Bidders are required to put up 40 percent cash within 37 days and give a bank guarantee covering 60 percent of the bid amount.

With a paid-up capital of Rs 600 million, bidders are expected to take 80 percent shares. And in case the employees do not subscribe to their 10 percent allocated quota then the buyer will have to fund 90 percent of the equity on the offered price. This means the buyer must have the capacity to first raise funds to the tune of Rs 2.5 billion in cash and have the requisite potential to pay the banks Rs 3.7 billion in principal plus mark-up over the next three years.

Besides the requisite financial resources, the buyer must have the expertise required to run a chemical process unit which is not only hi-technology but also involves handling of hazardous products produced in a high pressure environment, say the experts.

Lack of engineering experience, they say, can cause not only environmental damage but a plant shut-down which could cause fertilizer shortage. And it is always not possible to meet shortages in fertilizer on short notices. Pak-Saudi's production is 18 percent of the national output.

Chemical experts are appalled at the commission's insensitivity and are wondering why fertilizer is not treated as an essential item such as electricity and gas.

They say Kot Addu & Sui Northern Gas privatisation quite rightly involved a pre-qualification process. And only bidders with relevant experience and sufficient funds to make the projects grow were permitted in the privatisation process.

At present, the fertilizer field is dominated by Fauji Foundation having installed capacity of 1.3 million tons which is projected to increase to 1.8 million tons in the next two years. Engro Fertilizer at 650,000 tons is a distant second and even after expansion to 850,000 tons would not be in a position to effectively compete with Fauji.

In case, Engro is successful in acquiring Pak-Saudi, then with combined capacity of 1.3 million tons, there could be genuine competition.

Dawood Hercules with 400,000 tons capacity is also aspiring for Pak-Saudi. Besides the employees group in collaboration with Junaid Mukhdums and Sana Qureshi, Dewan Salman and Ibrahim Fibre are also regarded as serious buyers.

But as usual the rumour mills have it that an interior Sindh group headed by a shalwar kamiz designer of Karachi has been assured the backing of the high-ups who matter at present. The employees group has the right to match the highest bid under the terms of sale.