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Allocation of additional gas can create permanent opportunity for exports

There is a great need for increasing under cultivation area in Pakistan
Interview with Mohammad Ruhail – CEO, Engro Fertilizers Limited

Profile

Ruhail Mohammed is currently the Chief Executive Officer of Engro Fertilizers Limited. Prior to his current position, he was the Chief Financial Officer of Engro Corporation Limited and also the Chief Executive Officer of Engro Powergen Limited.

He holds an MBA degree in Finance from the Institute of Business Administration Karachi, and is also a Chartered Financial Analyst (USA).

Ruhail has 25 years of financial & commercial experience and prior to becoming CEO has worked in areas such as treasury, commodity & currency trading, derivatives, merger & acquisitions, risk management, strategy & financial planning. He has worked in these areas in Pakistan, UAE and Europe.

He is on the Board of Engro Corporation Limited and its various subsidiaries. In addition, he is also on the Boards of Hub Power Company Limited, Sindh Board of Investment and Pakhtunkhwa Energy Development Organization.

Use of pesticides in Pakistan is on the rise but its use is not judicious. Pest management techniques should be adopted and biologically safe pesticides should be introduced to ensure food safety and quality. Residue of pesticides in food items is one of the hurdles in export of agri production.

Countries are now advancing towards precision farming, usage of drones for effective pest application and specialty fertilizers, which needs to be introduced in Pakistan as well, said Mohammed Ruhail, Chief Executive Officer (CEO), Engro Fertilizers Limited in an interview with PAGE.

PAGE: IN VIEW OF THE GLOBAL DECLINE IN COMMODITY PRICES HOW WOULD YOU COMMENT ON THE FINANCIAL PERFORMANCE OF ENGRO FERTILIZERS?

MOHAMMED RUHAIL: Despite the above factors, the Company managed to post second highest-ever profits in EFERT’s history by selling 1,652 KT of Urea, 534 KT (highest ever sales) of DAP and 114 KT of blended fertilizers.

For full year 2016, the Company has declared a profit-after-tax of PKR 9,283 million, a decrease of 37% over PKR 14,819 million earned in 2015. The lower profitability was primarily due to lower urea off take and multiple price cuts amid the industry oversupply situation. On the positive side, however, the Company’s phosphate segment, which was acquired in 2015, showed strong performance. The management continued to negotiate and bring down mark-up rates on its long term and short term loans, which helped reduce financial charges and augment profitability.

However, the urea operating environment remained challenging in 2016 for the fertilizer industry given excess production in tandem with weaker farmer economics, global price declines and delayed subsidy announcement by the government.

PAGE: ENGRO IS CONSIDERED AS A BIG BRAND IN FERTILIZER SECTOR OF THE COUNTRY, WHAT IS ITS MARKET SHARE IN PAKISTAN?

MOHAMMED RUHAIL: There are four players in the fertilizer industry (1) FFC 50%; (2) EFERT 31%; (3) Fatima 15% and (4) Agri Tech 4%. FFC and EFERT have the highest share considering significant investment they have done till date.

PAGE: WHAT IS THE PRODUCTION CAPACITY OF FERTILIZER INDUSTRY IN PAKISTAN?

MOHAMMED RUHAIL: Currently, urea production is 6mn MT vs. capacity of 7 mn MT. Actually the country is now self-sufficient in the production of Urea, CAN, NP/NPK due to sufficient gas availability. Only DAP is imported as its demand is 2 mn MT vs. local production of 0.74 mn MT.

PAGE: NATURAL GAS IS THE BASIC INPUT OF GAS INDUSTRY, ARE YOU GETTING ENOUGH GAS TO RUN BOTH PLANTS?

MOHAMMED RUHAIL: We are operating at 81% capacity, however, considering the demand of Urea is 5.5 mn MT vs capacity of 7 mn MT, supply of gas is sufficient to meet the local requirement. If additional gas is allocated to the fertilizer sector, permanent opportunity for exports can be explored which would allow to earn valuable foreign exchange.

Going forward, sustainability of gas supply to the fertilizer sector is going to be a huge challenge for the government as well as for the manufacturers as the government has recently diverted gas (17%) to the power sector, which was specifically dedicated to the fertilizer sector, which may result in faster depletion of gas reserves.

PAGE: THERE IS A SENSE OF CONCERN AMONG INDUSTRIAL CONSUMERS REGARDING GAS PRICES IN PAKISTAN, YOUR COMMENTS ON THE ISSUE OF PRICES IN THE COUNTRY?

MOHAMMED RUHAIL: Despite subsidy on feed stock gas, average gas price remains high in Pakistan against other urea manufacturing countries. In Bangladesh, gas price is USD 1/MMBTU vs. USD 5/MMBTU in Pakistan. Further, the imposition of GIDC levy (since Dec 2011) have further impacted the profitability of the fertilizer manufacturers as the entire cost of GIDC has been absorbed by the industry. We expect the government to eliminate the GIDC to support the fertilizer manufacturers.

PAGE: THE AGRICULTURE SECTOR SUFFERS A LOW PER ACRE YIELD, WHICH IS LESS THAN OTHER COUNTRIES IN THE REGION LIKE INDIA AND CHINA AND OTHER COUNTRIES, YOUR POINT OF VIEW ON THIS ISSUE?

MOHAMMED RUHAIL: In countries like India and China, consistent and focused effort by public sector support programs has played key role in improving per acre yields. If we take the example of India, use of improved seeds (temperature and drought resistant varieties) and high yielding hybrid seeds are in use, in case of wheat their use of certified seed is near 100% while in Pakistan only 25% certified seed.

Similarly, to promote balanced use of fertilizers, India is giving 70% subsidy on urea, 50% on phosphate fertilizers and 50% on potassic fertilizers. This has helped them achieve desired N, P&K use ratio. They have long term farmer support programs e.g. under drought years diesel subsidy is given for tube wells. Moreover, bio fertilizer subsidy is introduced to promote its use.

In India, agri universities and extension department has played very important role in technology transfer to farmers, which has helped them improve crop yields.

In Pakistan, there is a need to revamp agri extension system and their KPI should be linked with improving per acre yield of crops in the respective districts.

PAGE: DO YOU THINK THAT A UNDER CULTIVATION AREA NEEDS TO BE INCREASED IN PAKISTAN?

MOHAMMED RUHAIL: Yes, there is great need for increasing area under cultivation. In Pakistan, we have only 22 million hectares cultivated area as compared to our total geographical area of 79 million hectares.

Agricultural land in Pakistan is shrinking due to urbanization and industrial use of land while our population is on the rise.

This situation calls for increasing the cultivated area. We have 8.27 million hectares of cultivable waste land, which can be brought under cultivation ensuring water availability (adding more dams and introducing water harvesting techniques) and water management practices at farm level.

PAGE: WOULD YOU LIKE TO COMMENT ON UTILIZATION OF FERTILIZER, WATER AND PESTICIDES IS IN ACCORDANCE WITH MODERN TECHNIQUES FOR ENHANCING AGRI PRODUCTS?

MOHAMMED RUHAIL: Use of fertilizers in Pakistan is sub optimal and unbalanced. There is need to promote the balanced use of fertilizers for sustaining soil fertility and ensuring sustainable crop productivity.

Soil test based fertilizer recommendations and knowledge transfer to farmers can help bridge the gap. Our irrigation system was designed some 50 years ago, and does not match the need of today’s agriculture. There is dire need for promoting water management techniques and modern irrigation techniques. High efficiency irrigation system should be introduced for improving crop production.

Company Profile

Engro Fertilizers Limited – a 87% owned subsidiary of Engro Corporation – is a premier fertilizer manufacturing and marketing company having a portfolio of fertilizer products with significant focus on balanced crop nutrition and increased yield.

As one of the 50 largest fertilizer manufacturers of the world we have close to five decades of operations as a world class with a wide range of fertilizer brands, besides urea, which include some of the most trusted brand names by Pakistani farmers. These include brands like Engro Zarkhez, Zingro, Engro DAP and Envy amongst others.

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