Thanks Idle, I agree. I've recalculated my estimate of the true...

Thanks Idle, I agree.

I've recalculated my estimate of the true loss that IPL shareholders have experienced from the shutdown of the plant of eight weeks and five days, using
- the average price for ammonia from the start of the shutdown (IPL's figure of $1135 per ton) and the S&P Global price as at 1st April of $1400
per ton. This average will be conservative, because the plant did not come back on line until a couple of weeks later, after prices had continued to rise rapidly.
- offset by a small rise in average gas prices from IPL's base Nymex cost of $4.57 / MMBTU to around $5.40 at the end of the shutdown

My calculation differs from IPL's estimate that is based on a profit estimate based at the beginning of the period and that does not recognise the sharp price rise and profit increase that would have been available had the plant continued operating for the following eight weeks.

I come up with a lost profit of A$147 million after tax, or $22 million, or 18%, more than revealed by IPL.

A loss of about $150 million after tax is staggering. No 'sorry' from management - just a warm and fuzzy congrats on us taking a bit longer than we thought to fix a pipe rupture and minor damage to surrounding equipment. More than two months to fix a pipe seems to me to be a huge amount of time and I'd be very interested if the Board of Directors has requested management to conduct and independent audit by international management consultants to see whether that time was justified and what improvements could have been made. BOD - if you haven't yet, then please do so.

Did they work to a Critical Path Analysis - to work out which items of the repair would take the longest, which were the items that had to go in before everything else? And did the plant engineers and maintenance staff work 24 hours a day, week in and out, to complete these critical items as fast as possible? And if they didn't have the manpower to work three shifts, did they have back-up already in place with external contractors to come in at a moment's notice? (and if you are properly pre-planning to avoid extensive and ultra-expensive downtime, IPL should have in place agreements with external contractors that would give IPL immediate access to their staff after only a few days' notice - and they would obtain the contractors' agreement to such drastic 'downing of tools' on other jobs because IPL would have their contract in place that gives them that priority. And that priority would have been negotiated by IPL agreeing to an immediate up-front payment of say $100,000 on signing the contract and then agreeing to pay double or treble the contractors' rates for time worked. Alternatively, IPL would carry surplus maintenance staff to help tide over critical downtime issues to minimise plant downtime. Was any time wasted for materials, piping or other spares to arrive? Or did we have it in stock? After all, we are talking about saving only over US$20 million a week (!) so carrying a bit of extra cost to avoid a couple of weeks downtime would provide a huge benefit to shareholders.

So now we come to another critical question....did IPL permanently repair the temporary repair it made last year to the ammonia cooler during the recent eight week downtime? It seems not, but we haven't been told. IPL told us last year that the cooler would likely fail sometime between about now and over the next 12 months. At current huge ammonia prices of $1600 a ton, and absolutely huge profits, why would they risk another three week shutdown at any time? Based on IPL's loss of profits advised for the shutdown, and substituting for the current ammonia price, a three week shutdown would rob us of another A$30 million profit after tax. Surely IPL would have had plans in place to immediately repair the cooler if a significant shutdown occurred elsewhere in the plant?

I guess the management are hoping like hell that the cooler doesn't fail soon - they couldn't then ask for all their Short and Long Term Bonuses, could they?

I trust that the discussion on these subjects on Hot Copper will provoke some response, and no doubt a rebuttal, when the Half Yearly is issued next Monday.