Canadian fertilizer firm Agrium, stymied by public opposition to its plans for a joint-venture urea plant on Egypt’s Mediterranean coast, will instead take a stake in a new plant already built nearby, with plans to expand it.
In a deal announced Monday with the Egyptian government, EAgrium, the joint venture between the Calgary company, three state-owned Egyptian energy companies and a Saudi Arabian investment firm, will be bought out by Misr Oil Processing Co. (MOPCO) in a share swap.
EAgrium’s shareholders will become shareholders in MOPCO, with Agrium getting a 26 per cent stake in the combined company. MOPCO recently completed a 675,000-tonne urea facility, which is expected to start commercial production in the fourth quarter of this year.
The combined company will then expand that plant to include a second and third urea train, which would boost its total annual capacity to about two million tonnes.
Agrium’s share of the annual production would be 175,000 tonnes of urea until the expansion is complete in 2011, after which it would increase to about 525,000 tonnes, the company said.
“We are extremely pleased that we have been able to reach an agreement with the Egyptian government that allows us to establish an immediate presence and long-term strategic position in Egypt, as well as providing additional earnings and cash flow almost immediately,” Agrium CEO Mike Wilson said in the company’s release Monday.
“As a foreign investor in Egypt it gives us comfort to see such commitment on the part of the government.”
MOPCO, which is over 90 per cent owned by the Egyptian government, is to arrange the proposed project financing facility of about $1.1 billion (all figures US$) after completion of the share swap which is required to finance all future project costs.
Under the current financing plan, Agrium would not be required to put any further equity into the project beyond about $280 million of equity it had already committed to the EAgrium project.
Agrium had warned its shareholders in June that it might have to write off some or all of that $280 million after the Egyptian People’s Assembly voted to recommend relocation of EAgrium’s plant to “an unnamed location.”
The proposed plant was sited in an industrial-zoned area, but according to news reports, local opponents had claimed the project could put a nearby beach resort at risk. Work at the EAgrium site had been stopped since April.
Agrium, which said it had already secured permits, zoning, financing and construction contracts specifically for the EAgrium site, said in June that moving it elsewhere and starting over was “not a viable option.”
Egyptian Prime Minister Ahmed Nazif then stepped in to propose that either Agrium could take a share of the MOPCO plant or Egypt could buy out Agrium’s investment in the project.
MOPCO’s share swap with the EAgrium partners is expected to take place by the end of the third quarter of this year, Agrium said Monday.