PetChem’s urea plant hits a snag

KUALA LUMPUR: Petronas Chemicals Group Bhd’s (PetChem) US$1.5 billion (RM4.43 billion) urea fertiliser plant in Sipitang, Sabah has hit a snag due to a number of unresolved land issues with the Sabah government.

To resolve the issue, PetChem had approached the state government to take up a 25% stake in the project that will build a urea plant with a capacity of 1.2 million tonnes a year, its executive vice president Datuk Wan Zulkiflee said.

“We made an offer to Sabah some months ago and we are still waiting for the response,” he told reporters after the company’s AGM yesterday. “We are currently addressing the land issues that are still unresolved in Sabah. Once it is resolved, we can go ahead with the project.”

PetChem had on June 30 announced the development of a urea feritliser plant in Sipitang that will effectively increase the company’s urea capacity by 83% and total fertiliser by 46%.

According to an earlier announcement to Bursa Malaysia, PetChem said the construction of the plant would start in the second quarter of 2012 with commissioning slated for 2015.

“We will look for funding,” said Zulkiflee. “We practise a very active capital management programme and we plan to go out and get some external funding.”

According to PetChem chief financial officer Wan Shamilah Saidi, the combination between internal and external funding for the US$1.5 billion is yet to be determined but acknowledged that capital expenditure (capex) will be incurred in three years until the plant is commissioned in 2015.

Maybank IB Research, in a research note, said this capex is not a burden as PetChem has current net cash of RM5.2 billion that is expected to grow.

PetChem president and CEO Abd Hapiz Abdullah said it was looking at possible acquisitions that would add value to its strength in producing olefins and derivatives as well as fertiliser and methanol.

“We are not in heavy talks,” he said. “I like to stress that our plate is currently very full of what we want to do, so we will try to focus on what we are doing now.”

Besides the urea plant in Sabah, PetChem and BASF SE are conducting a feasibility study on a RM4 billion specialty chemicals plant in Gebeng, Pahang that will be completed by the end of the year, according to Zulkiflee.
From left: Hapiz, Zulkiflee and Shamilah at the press conference after the AGM.

The company is also expected to participate in its parent Petroliam Nasional Bhd’s (Petronas) US$20 billion Refinery and Petrochemicals Integrated Development (Rapid) project in Pengerang, southern Johor, of which the feasibility study is scheduled to be completed at the end of next year, he added.

Petronas holds a 64.35% equity stake in PetChem.

On the outlook of the industry, Zulkiflee said demand for the company’s products and their accompanying selling prices remained strong on growing demand from China and India despite the economic uncertainties in the US and Europe.

For the financial year ended March 31, 2011, PetChem recorded a net profit of RM2.99 billion, up 36.5% from RM2.19 billion the year before. Revenue came in at RM14.6 billion versus RM12.2 billion a year ago, while earnings per share grew to 40 sen from 30 sen previously.