The Egyptian government is negotiating with a number of fertilizer companies operating in free zone areas to increase the price they pay in return for natural gas in order to compile with the international gas prices

Al Khorafi Group of Kuwait has agreed on amending prices of natural gas supplies to Alexandria Fertilizers plant, in which it controls a 29.24% stake.
As for Alexandria Fertilizer Factory, it has agreed to pay $1.6 per MBTU, similarly to the price paid by local fertilizer companies operating in non-free zone areas, instead of $0.75. the approval is subject to one condition which is to lower down this price if the price of fertilizers ever falls below $150 per ton.
The price is now between $450 and $500, Al Mal Newspaper quoted a Ministry of Petroleum source as saying.
According to a senior official at the Egyptian Ministry of Petroleum, the Group representatives did not obstruct amendment of the agreement. They only requested to put into consideration that the new pricing should account for production costs at least for this year’s export contracts.
“Alexandria Fertilizers has approved the proposal for raising prices of natural gas supplies to the levels dominant in the local market,” added the official.
According to the terms of signed agreement, the company buys natural gas from the government at 75 cents per MBTU, compared with the international prices of nearly $10 per MBTU. Meanwhile, prices for supplies to Abu Qir Fertilizers and Delta Fertilizers companies are set at $1.60 per MBTU which to be increased to $2.65 per MBTU after a two-year period.
The new proposal is hence intending to reach a compromise that would enable the Ministry of Petroleum to persuade free zones fertilizers producers to accept amendment of prices.
The official pointed out that many plants in the free zones pay 75 cents per MBTU that is equivalent to $90 per ton compared with an international price ranging from $450 and $500 per ton.
Along the same strategy, the government is holding a negotiation with Canadian fertilizers giant Agrium to hike the price of natural gas that is used by its 60%-owned fertilizer factory under construction in Damietta. Agrium signed a five-year contract with the government to receive an annual 1.2 bcm of natural gas, or about 8% of total Egyptian industrial natural gas consumption, for $1 per MBTU.
Last August, a new industrial energy policy was issued by the Egyptian government to eliminate the budget of energy subsidies allocated for a number of energy-intensive industries by 2009.
Under this policy, natural gas prices will be raised to $2.65 per MBTU by 2009-2010. After this transition period, the government will set prices with reference to the cost of production and global oil prices. The government now pays international oil companies $2.65 per MBTU for the natural gas they produce at the Egyptian gas fields. The policy, however, does not include companies operating in free zones.

By Ashraf Said