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Mid year report to the shareholders Program

Aug 13 - 19, 2001

On behalf of the Board of Directors of Engro Chemical Pakistan Limited, we are pleased to present the un-audited accounts for the half-year ended June 30, 2001.

The overall market demand for urea declined by 2% over the corresponding period of last year due to shortage of irrigation water and reduced financial liquidity of the farming community. During the period under review the Government increased the price of gas and levied General Sales Tax (GST) on a deemed price of urea. At the request of the Government and in view of the difficulties faced by the farming community due to drought conditions, the GST was absorbed by the producers. The price of urea in the domestic market was approximately 20-25% below international price levels.

The price of urea for the period recovered from the unusually depressed levels experienced last year. In addition the Company benefited from an exchange rate gain on company's foreign currency deposit. The net profit for the first half was Rs 287 million compared to Rs 73 million recorded in the prior period. Based on these results your Board of Directors is pleased to declare an interim dividend of Rs 2.00 per share which is the same as for the corresponding period last year.

The Company sold 284,000 tons of urea of which 268,000 tons was own product. Compared to last year, the urea sales volume increased by 3% and the Company marginally improved it's market share to 16.4% from 15.7% achieved last year. The Company's sale of imported phosphatic and potassic fertilizers at 30,000 tons was down 15% versus last year mainly due to depressed demand. Production of Engro urea at 368,000 tons was down 2% from the record level achieved last year mainly due to equipment limitations. A new, redesigned rotor was installed in April, 2001 but other limitations surfaced which precluded achievement of design production rates. These are being addressed on priority as part of a comprehensive reliability assurance programme. During the period under review we implemented a project which has appreciably improved the quality of our urea and our Daharki manufacturing site obtained ISO 9002 Certification.

Early in the year the company entered the Seed business through marketing of imported hybrid seeds of corn, sunflower and sorgum. Inspite of a difficult market environment for oil seeds, the company was able to make an impact and establish it's brand name "Bemisal" in the market. The company also achieved mechanical completion of its new 100,000 tons p.a. NPK plant on schedule and within the $10m budget. Towards the end of the period, commercial production and marketing activities were commenced.

Engro Vopak Terminal Limited, our first 50% owned joint venture posted an un-audited profit after tax of Rs. 104 million during the first half of 2001 compared to Rs. 127 million for the same period last year. The decline in profit is primarily attributable to exchange losses on foreign currency loans. Engro Asahi Polymer and Chemical Limited, our second 50% owned joint venture incurred an unaudited after tax loss of Rs. 37 million. The amount of loss has been sharply reduced when compared to the Rs. 226 million incurred in the same period last year. Market development activities and other operational improvements are being pursued to make the venture profitable in the near future.

The recent rainfall is likely to have a beneficial impact on the demand for urea during the forthcoming Rabi season which bodes well for the country's agriculture. However, of great importance to the fertilizer industry is the outcome of the much awaited Fertilizer Policy which has been under consideration of the Government for some time. A favorable policy will encourage private sector investment in privatization and new capacity buildup. A strong domestic fertilizer industry is essential to ensure steady and reliable supply of this vital agricultural input.

The tragic demise of Mr. Shaukat R. Mirza. Chairman of the Board of Directors is a great loss to the company, industry and country. His contributions to the growth and development of the company and the high standards of professionalism, excellence and corporate governance that he enunciated are recognized and appreciated by the Board of Directors.

The Board elected Mr. Nisar A. Memon as the new Chairman of the Board. Mr. Memon has been a member of the Board since April, 1994.