(Amounts in thousand)
than the other fertilizer companies on the SNGPL system. The Holding Company has out rightly rejected 22. NET SALES
these contentions, and is of the view that it has a strong case for the reasons that (i) 100 mmscfd gas has
been allocated to the Holding Company through a transparent international competitive bidding process
held by the Government of Pakistan, and upon payment of valuable license fee; (ii) GSA guarantees
uninterrupted supply of gas to the expansion plant, with right to first 100 mmcfd gas production from the
Qadirpur gas field; and (iii) both the Holding Company and the Qadirpur gas field are located in Sindh.
Also neither the gas allocation by the Government of Pakistan nor the GSA predicates the gas supply from
Qadirpur gas field producing 100 mmscfd over 500 mmscfd. No orders have been passed in this regard
and the petition has also been adjourned sine die. However, the Holding Company’s management, as
confirmed by the legal advisor, considers chances of petitions being allowed to be remote.
21.8 The Holding Company along with other fertilizer companies, received a show cause notice from the
Competition Commission of Pakistan (CCP) for initiating action under the Competition Act, 2010 in
relation to unreasonable increase in fertilizer prices. The Holding Company has responded in detail that
factors resulting in such increase were mainly the imposition of infrastructure cess and sales tax and
partially the gas curtailment. The CCP has issued an order in March 2013, whereby it has held that the
Holding Company enjoys a dominant position in the urea market and that it has abused this position by
unreasonable increases of urea prices in the period from December 2010 to December 2011. The CCP
has also held another fertilizer company to be responsible for abusing its dominant position. In addition,
the CCP has imposed a penalty of Rs. 3,140,000 and Rs. 5,500,000 on the Holding Company and that
other fertilizer company, respectively. An appeal has been filed in the Competition Appellate Tribunal
and a writ has been filed in the Sindh High Court and stay has been granted against the recovery of
the imposed penalty. Hearing have been conducted at Appellate Tribunal where Farmer Association
has filed an internal application. The Holding Company’s management believes that the chances of
ultimate success are very good, as confirmed by legal advisor, hence, no provision has been made in
this respect.
21.9 During the year, the High Court of Islamabad in its order dated June 8, 2017 declared that the income
derived by M/s Snamprogetti Engineering (the Contractor) from its contract with the Holding Company, is
subject to tax as per Clause 4 of Article 5 of Double Taxation Treaty between Pakistan and the Netherlands.
As per the terms of the contract, the Holding Company is liable to reimburse the Contractor for any taxes
applied to the income of the Contractor under the contract by the taxation authorities. In respect thereof,
the Contractor has preferred an appeal in the Supreme Court of Pakistan.
The management of the Holding Company based on the opinion of its legal counsel, is of the view that
that the income of the Contractor is exempt from tax under the aforementioned clause of the Double
Taxation Treaty and the matter will be decided in favour of the Contractor and, hence, no provision has
been made in this respect. Cost of sales - Purchased and packaged product
21.10 Commitments
2017 2016
-----------------Rupees-----------------
Commitments in respect of capital expenditure
and other operational items 2,626,904 2,483,898
119 engro fertilizers
(Amounts in thousand)
2017 2016
-----------------Rupees-----------------
Gross sales:
- manufactured product 54,134,282 50,899,776
- purchased and packaged product 27,848,187 28,111,771
81,982,469 79,011,547
Less: Sales tax 4,853,126 9,474,294
77,129,343 69,537,253
22.1 The above amount includes trade discount amounting to Rs. 362 (2016: Rs. 406,277).
23. COST OF SALES
2017 2016
-----------------Rupees-----------------
Cost of sales - Manufactured product
Raw materials consumed 12,094,227 15,417,290
Salaries, wages and staff welfare (note 23.1) 2,021,099 1,896,338
Fuel and power 6,639,650 7,651,502
Repairs and maintenance 1,025,019 1,813,913
Depreciation (note 4.2) 5,018,362 4,972,487
Amortisation (note 5.2) 15,700 13,410
Consumable stores 446,686 574,544
Training, HSE and other related expenses 404,448 408,061
Purchased services 523,297 431,932
Travel 52,175 48,684
Communication, stationery and other office expenses 40,589 31,371
Insurance 329,605 359,334
Rent, rates and taxes 21,078 19,577
Other expenses 2,576 3,304
Manufacturing cost 28,634,511 33,641,747
Add: Opening stock of work in process 30,233 20,688
Less: Closing stock of work in process (note 8) (18,526) (30,233)
Cost of goods manufactured 28,646,218 33,632,202
Add: Opening stock of finished goods manufactured - net of NRV 5,050,607 1,915,094
Less: Closing stock of finished goods manufactured
- net of NRV (note 8) (1,733,036) (5,050,607)
31,963,789 30,496,689
Opening stock - Purchased and packaged product - net of NRV 1,135,905 3,688,392
Add: Purchases during the year 25,449,489 19,048,910
Less: Closing stock - Purchased and packaged product
- net of NRV (note 8) (4,638,428) (1,135,905)
21,946,966 21,601,397
53,910,755 52,098,086
23.1 Salaries, wages and staff welfare includes Rs. 130,347 (2016: Rs. 130,776) in respect of staff retirement
benefits.
Annual Report 2017 120