INTERVIEW: ALIUDDIN ASAD, PRESIDENT ENGRO CORPORATION

AMANULLAH BASHAR
(feedback@pgeconomist.com)

Aug 20 - Sep 2, 20
12

Muhammad Aliuddin Ansari, President & Chief Executive Officer of Engro Corporation who has assumed his new responsibilities as the Chief of Engro Corporation in May 2012 was a little bit disturbed while discussing the persistent energy crisis including circular debt and its horrifying impact on the economy and the huge population living below the poverty line in Pakistan.

Expressing his apprehensions that the energy crisis may have wide spread effects on foreign and local investment consequently on growth rate, increasing number of unemployment. The energy crisis has sent such a bad message that foreign investment as well as domestic investment has come almost to a stand still.

In an exclusive interview, Ali Ansari regretted that despite the fact that Engro Corporation limited was committed the national economy and has invested heavily to establish the world's largest urea plant with a cover of sovereign guarantee for supply of natural gas yet the plant along with another three urea plants, lying inoperative while the government is endeavoring to cater to the agriculture needs of the country by spending hard earned foreign exchange which may cross $1 billion this year.

PAGE: WOULD YOU LIKE TO ELABORATE YOUR APPREHENSION ON THE POSSIBLE RISK TO FOOD SECURITY IN PAKISTAN?

ALIUDDIN ANSARI: It is quite simple to peep into the future on the back of an endless energy crisis which has adversely affected the fertilizer industry running far below of the capacity due to short supply of gas. It should be shocking to every body that the country has an installed capacity to produce 6.9 million tons of Urea as against the demand of 6.5 million tons that means we have the capacity to produce even more than the actual requirement. However it is height of inefficiency, lack of planning and governance that instead of exporting the surplus urea, Pakistan has to import at least 4.5 million tons of urea at the cost running in millions of dollar.

The increasing cost of imported inputs is forcing the farmers to reduce application of fertilizer that naturally affects per acre yield. It will not be out of place to mention that we are not optimizing the size of crop due to trend of applying fertilizer much below the required amount of fertilizer reflected in much below agriculture production or per acre yield as compared per acre yield by Indian farmers. The proper use of fertilizer makes all the difference. As far as food security was concerned it may be noted that at present the policy makers in are preferring import of Urea at the cost of closure of local industry because urea is available on credit in the international market. Similarly wheat is also available on credit in the world market which attracts the decision makers to import wheat as well. If this happens our farming community would have no option but stop cultivating the wheat crop.

PAGE: HOW OUR NEIGHBORING INDIA MANAGES TO CATER TO SUPPLY NEEDS OF ITS UREA INDUSTRY DESPITE BEING THE NET IMPORTING COUNTRY OF NATURAL GAS?

ANSARI: Actually it is a matter of priorities, the Indian policy makers never hesitate in giving subsidy to their farming sector at a massive scale without any care of WTO conditions or other pressure, and the subsidy to the agriculture is noticeably in vogue even in America or for that matter even in China and elsewhere in the world, while the agriculture seems a little priority in the eyes of the policy makers. In order to substantiate this statement you can see that gas is supplied to general industrial consumers at least four days a week while this facility is denied to urea industry. Why the Urea industry is not being treated at par with other industry especially when this industry has to play a vital role for agriculture performance of the country

PAGE: WHAT WOULD YOU LIKE SUGGEST TO OVERCOME THE CRUCIAL ISSUE OF ENERGY SHORTAGE IN PAKISTAN?

ANSARI: Actually the people at the helm of affairs should have a discerning eye for judicious use of the precious natural gas instead of allowing its burning for non-productive use. For instance, Pakistan is probably the only country which has allowed CNG stations in all corners of the country at a massive scale. No country in the world has such a huge number of CNG stations to consume it for motorization. They are using gas for value addition rather than transportation. The decision makers should increase the CNG prices to discourage its use for non-productive purposes.

PAGE: THE GAS CONSUMED IN TRANSPORT IS NOT OF GREAT MAGNITUDE AND SINCE IT'S A PUBLIC ISSUE NO GOVERNMENT CAN TAKE RISK OF UNPOPULAR DECISION TO SHUT DOWN CNG STATIONS, WHAT OTHER ALTERNATIVES ARE IN YOUR MIND TO COMBAT ENERGY CRISIS?

ANSARI: It is painful to see that although Pakistan is an energy rich country yet the lack of planning, delayed decisions, poor follow up of even good decisions, bureaucratic hurdles, and of course the elements of vested interests were responsible to drive the country to the present state of affairs. Pakistan has a plenty of gas however the lack of incentives to the exploration companies disrupted the supply chain of natural gas. Even the proven fields were not developed to augment the gas supply. However the recent decision of doubling the well head gas price is a step in right direction and hopefully the supply of gas will improve going forward. It will be interesting to note that even after a 100 per cent hike in well head gas price the cost of production would be much lower than the imported fuel either oil or gas.

PAGE: ONE OF THE MAJOR CONSUMERS OF NATURAL GAS IS THE POWER GENERATION SECTOR WHICH HAS ALSO IMBALANCED THE ENERGY MIX IN THE COUNTRY BECAUSE WE CANNOT AFFORD TO BEAR THE COST OF OIL BASED POWER GENERATION, WOULD YOU LIKE TO COMMENT ON OUR POWER SECTOR?

ANSARI: The power generation is yet another example of our lethargic attitude and lack of planning which is costing heavily on the daily life of the people due to relentless hike in power tariffs because increasing cost of generation. The developed countries like United States, Germany, China and now India have sensed the growing cost of power generation decade ago as they swiftly shifted over coal based system and today more than 50 percent of their power is coal based power generation in all these countries. While Pakistan was lacking behind to utilize huge coal deposits at Thar due to lack of planning, inefficiency and may be the charm of hidden kickback in oil business. Although we are late to go for coal based power generation which considerably reduces the cost of generation yet not too late, there is no rocket science involved for conversion from oil fired to coal fired system except little modification in the machines and the change of boilers. Besides coal fired system, there is a huge potential available in Sindh for wind power system and is quite capable to meet the entire energy need of at least Sindh and Balochistan.

Earlier it was said that the cost of solar energy is too high and not feasible for Pakistan. Now one must be happy to note that cost of solar energy has also come down to a great extent which should also be considered by the decision makers.

PAGE: IN YOUR OPINION WHAT IS THE IMPACT OF THE CHRONIC ISSUE OF CIRCULAR DEBT AND IS IT ADDING TO THE PLIGHT OF THE PEOPLE INDIRECTLY?

ANSARI: Yes, the untamed circular debt is a serious issue which needs to be resolved at the earliest before the damage is done. You know today the refineries have stopped operations and they are most importing diesel and furnace oil to cater to IPPs because the stuck up payments have forced them to operate refineries for want of liquidity. The completion work of the upcoming refineries has also been affected

Seriously and those refineries which were in the pipeline seems to have fed up with the situation. This trend can be harmful for future investment in the petroleum sector, he warned.

PROFILE OF ALIUDDIN ANSARI

Ali is a graduate of Business Administration with a specialization in Finance & Investments. Ali started his career as an Investment Manager at Bank of America in London which later became Worldinvest after a management buyout. Prior to joining Engro, he has also worked as CEO Pakistan and later as COO Emerging Europe for Credit Lyonnais Securities Asia (CLSA). He has also worked as CEO AKD Securities and was instrumental in launching Online Trading, Venture Capital and Private Equity investments. In 2006 he partnered with an Oil & Gas company to form Dewan Drilling, Pakistan's first independent Drilling Company which he led as its CEO before joining Engro.

Ali is a member of the Board of Directors of Engro Corporation Limited, Engro Fertilizers Limited, Engro Eximp (Private) Limited, Engro Eximp AgriProducts (Private) Ltd. (formerly: Engro Foods Supply Chain (Pvt.) Ltd.), Sindh Engro Coal Mining Company, Dawood Hercules Corporation Limited, Dewan Drilling Limited, Dewan Petroleum (Private) Limited, Pakistan Chemical & Energy Sector Skill Development Company, Pakistan Business Council, National Clearing Company of Pakistan (NCCPL) and is a Charter Member of The Indus Entrepreneurs (TiE). He has chaired a number of SECP committees, NCCPL and also served on the Boards of the Karachi Stock Exchange, Lucky Cement and Al Meezan Investment Management amongst others. He joined the Engro Corp. Board in 2009.

PROFILE: ENGRO CORPORATION LIMITED

Engro Corporation today is one of Pakistan's largest conglomerates with subsidiaries in a number of diversified sectors. Keeping in view the operations in multi category businesses, expansion strategy and growth vision, a holding company structure has been established to manage affairs of various businesses. Engro Corporation was therefore created as the holding company to provide direction to its subsidiaries and affiliates. Engro stands for "Energy for growth" and in lieu of that has seen diversification in various sectors in the last decade. The company's various businesses are designed to generate opportunities for Pakistanis. Engro Corporation is now operating overseas in the United States and the United Arab Emirateswith over 3,500 employees and looking at acquisition in Canada in 2011.

Today Engro Corporation plays host to 6 companies namely, Engro Fertilizers Limited, Engro Foods Limited, Engro Polymer & Chemicals Limited, Engro Powergen Limited, Engro EXIMP Private Limited and Engro Vopak Terminal Limited.

History: Our story begins with one company's enterprising decision to strive ahead and invest. In 1957, Pak Stanvac - an Esso/Mobil joint venture - stumbled upon vast deposits rich in natural gas in Mari while pursuing viable oil exploration in Sind. With Pak Stanvac focused exclusively on oil exploration, the discovery shifted the impetus to Esso which decided to invest on the massive industrial potential of Mari gas field. Esso proposed establishment of a giant urea plant in Daharki, about ten miles from the Mari gas fields, which would use natural gas produced as its primary raw material to turn out urea fertilizer. In 1964, Esso set up a urea plant with an annual capacity of 173,000 tons. Esso brought in state-of-the-art design; commercially tried facilities; and a highly distinguished pool of technical expertise to ensure a smooth start up. Total investment made was US$ 46M - the single largest foreign investment in Pakistan to date then. As the nation's first branded fertilizer manufacturer, the Company helped modernize traditional farming practices and boost farm yields, directly impacting the quality of life for farmers and their families, and for the nation at large. In 1978, Esso became Exxon as part of an international name change. In 1991, with a 75% equity buy out by the employees which is perhaps still the most successful employee buy-out in Pakistan's corporate history Esso was renamed Engro Chemical Pakistan Limited, the Company went from strength to strength with its consistent financial performance; growth of its core fertilizer business; and diversification into other enterprises.

PROFILE OF ENGRO FOOD

The year 2005 marks Engro Foods's surging entry into the consumer foods market - a move fueled by our vision to bring to the fore innovative food products packed with quality, value and nutrition. Using dairy as a stepping stone to enter the foods business, we launched Olper's our flag-ship all-purpose milk in March 2006, which soon became our power brand after gaining preference nation-wide for its rich, creamy freshness, high nutrition content and exciting, vibrant packaging.

Since then, we have gained a firm footing in the local foods business and given it a new direction with the continued success of our brands that are redefining local benchmarks with a consistently unique consumer experience. Today, Engro Foods. is the country's fastest growing local company catering to a wide demographic consumer base from high income groups to the more economically conscious segment of the market, our product portfolio comprises some of the country's biggest and best-selling brands including Olper's, Olper's Lite, Olfrute, Omore, Dairy Omung, Owsum and Tarang that have become household names and are the preferred choice for discerning consumers across the country and beyond. So whether it is our thick, creamy all-purpose milk, scrumptious ice-cream high on nutrition content or our refreshing range of fruity beverages, our products are guaranteed to tickle your taste-buds and leave you spoilt for choice with a craving for more.

Because at Engro Foods., we are passionate about providing our consumers with a memorable brand experience that exceeds expectations and raises the bar for quality, so that our products remain sought-after by everyone everywhere. To keep pace with the growing demand for our products, we have invested heavily in our production infrastructure - and own state-of-the-art manufacturing and processing units in Sahiwal and Sukkur. To source best with quality, we have also established a commercial dairy farm in the Nara Canal area of Sukkur.

At Engro Foods., we also take great pride in our highly effective and efficient supply chain network that ensures seamless execution of logistics within our distribution and delivery process so that our brands find their place on the shelves of every super-market, general store and retail outlet in the country well in time - and in ample quantity and the most reliable quality.

As we continue to increase our penetration locally with a greater focus on the international markets, we are confident that the years ahead will forge the way for our continued growth and success with new milestones and bigger opportunities in the foods business.

ABOUT THE BRANDS

Olper's is the company's premium milk brand which caters to SEC A, B and C.
Omore is the company's premium ice cream brand which caters to SEC A, B and C.
Olper's Lite is the company's High Calcium Low Fat Milk brand which caters to SEC A and A+.
Owsum is the company's flavored milk brand which caters to SEC A, B and C.
Olfrute is the company's juices and nectars brand which caters to SEC A, B and C.
Tarang is the company's tea whitener brand which caters to SEC C, D and E.
Omung is the company's economically priced milk which caters to SEC C, D and E.
Omung Lassi is the company's latest product and is available in 2 flavors.
Olper's Cream is the company's dairy cream brand which caters to SEC A, B and C.
Tarka (ghee) is the company's B2B product which is sold in Northern Pakistan.
Dobala is the by - product of Olper's cream and is sold B2B in Northern Pakistan.