Update: OCI halts fertilizer plants after gas supply cut

Update: OCI halts fertilizer plants after gas supply cut

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Tue, 06/11/2012 - 16:25

Egyptian group Orascom Construction Industries has stopped production at three fertilizer lines after the state gas company cut off supplies from a gas field for emergency maintenance.

OCI, Egypt's biggest listed company, said on Tuesday production at two subsidiaries had been halted but should be restored to previous levels within seven days.

"EFC and EBIC ... are facing low gas pressures, gas cuts this week due to maintenance at an EGAS field," OCI investment relations officer Erika Wakid told Reuters in an email.

Two lines, owned by OCI subsidiary Egyptian Fertilisers Company, produce about 1.3 million tons of urea per year and a third, owned by its Egypt Basic Industries Corporation (EBIC) subsidiary, about 700,000 tons of anhydrous ammonia.

"We expect the situation to normalize in about a week's time and will update the market as the situation progresses," Wakid said.

The financial newspaper Al-Mal had reported Tuesday that the Egyptian Natural Gas Holding Company (EGAS) had reduced gas supplies to energy-intensive factories due to maintenance of gas fields in the Nile Delta that will end in mid-November.

The paper cited EGAS Chairperson Sherif Soussa as saying that the maintenance process has halted supplies from the Borllos fields and others belonging to the Pharaonic Petroleum Company in the Nile Delta.

Analysts said a short-term supply cut should have minimal impact on OCI's earnings and stock price unless such cuts became repetitive.

"The effect is on the sentiment mainly," said Ahmad Shams al-Din of EFG Hermes. "There is a risk. We are producing [gas] below ordinary levels," he said. "In situations like this you would expect repetitive supply cuts."

Beltone Financial estimated in a research note that production equal to 4 percent of annual volume would be lost over the two-week stoppage.

OCI is awaiting government approval for a plan to split its construction and fertilizer businesses into separate companies to make them more competitive, widen their investor base and improve their credit profiles.

OCI also told the exchange on Tuesday it was continuing to resolve a dispute with the tax authority, which wants the group to pay capital gains tax on the 2007 sale of an affiliate.

It has said the sale was legally tax exempt because the affiliate's shares were listed on the stock market.

Analyst Shams al-Din said the tax dispute could have a more profound effect on OCI's finances than the cut-off of gas.

"What is more important to us and investors are the pending cases between OCI and the government ... They still need more approvals from the government. Could this impact the demerger process?"

OCI shares closed 2.4 percent higher.

Egypt, a modest gas exporter, has seen an energy crisis since last summer. It stopped exporting across its eastern borders due to increasing local demand and repeated bombings of the chief gas export pipeline in Sinai.

The paper reported that EGAS last month also reduced its gas supplies to factories and attributed the suspension to maintenance in the Nile Delta.

Egypt has started talks to import gas from Qatar and Algeria and invited tenders to explore oil and gas close to the country's northern borders.