Engro Chemical Pakistan Ltd. - urea production more than doubles

Economic Review, April, 1995 by Shaukat R. Mirza

The Government's policy decisions to deregulate the fertilizer industry and to offer incentives to expand domestic manufacturing capacity have been extremely successful. Within a period of a few years the fertilizer industry responded by investing over Rs.11 billion and adding one million tons of production capacity to make Pakistan self sufficient in urea. Further, the government was able to eliminate the huge burden of fertilizer subsidy on the exchequer and today urea is available to our farmers at a price that is approximately 50% of the international level.

Commenting on the company's performance in 1994, Mr. Shaukat R. Mirza, Chairman and CEO pointed out that the improvement in the company's profitability was attributable to the very significant increase introduction and sales of the company. The production of Engro urea more than doubled from 344,000 tons to 633,000 tons per year. This was made possible by attaining 105% of design capacity of the Rs. 3 billion expansion project which was completed late in 1993. Sales of the company also increased sharply and market share improved from 13% in 1993 to 20% in 1994. The strong operating performance of the company coupled with a tax holiday on the earnings of the expansion unit enabled the company to attain a profit of Rs. 60.1 million. It was pointed out that notwithstanding the tax holiday the company contributed Rs. 900 million in direct and indirect taxes to the national exchequer. The company is now expanding its urea capacity by 25% to 750,000 tons/year at an investment of Rs. 770 million. This is expected to be completed during 1995 and will contribute to continued self sufficiency in urea meeting growing farmer demands. The project has been financed largely by a Rs. 524 million rights issue.

The company also stepped up its community welfare activities to help the under-privileged both in rural and urban areas of Pakistan. In this regard the construction of a Mother & Child Care Centre at Daharki as desired by the Prime Minister was especially mentioned. In addition, the company held several free eye camps, provided free snake bite treatment to thousands of victims, and made donations to several reputable welfare organisations including the Aga Khan Hospital's new cardiac care unit.

Looking at the future, however, Mr. Mirza expressed concern at the apparent, shift in the government's priority away from the fertilizer industry. He said that with the continued growth in fertilizer demand it was imperative that additional gas should be made available especially to existing producers so they can debottle neck their plants in a most cost effective manner. In this regard he said Engro Chemical was in a position to quickly expand its capacity from 750,000 tons to one million tons per year provided additional gas is made available. He cautioned that reliance on imports to meet future requirements will again take us back to an era of erratic supplies, significantly higher product prices and/or subsidies. Since fertilizer is an essential input for food security and growth in the agricultural economy, he urged that a shift in gas allocation priority from the fertilizer sector should not be pursued. Instead, the government should speed up its efforts to bring on-line additional supply of fuels including gas to meet the demand of the other sectors in the country.

Mr. Mirza said the company is also keen to diversify its business. He felt the company was well positioned to bring foreign investment and technology into the country by doing joint ventures with reputable international companies. The company is acquiring land at Port Qasim and is bidding to set up a modern bulk liquid chemicals terminal cure jetty project. In addition, the company is seeking the government's support to rationalize tariffs so that it can make a beginning in building a world class petrochemical complex in Pakistan. Mr. Mirza was supportive of the government's plans to bring down tariffs rates. He said that the government should support and encourage the setting up of high tech capital intensive industries in Pakistan. He was confident that Engro Chemical will play a bigger role in the development of the national economy.

Shaukat R. Mirza, Chairman & Chief Executive Engro Chemical Pakistan Ltd.