As Pakistan’s first fertilizer producer, Engro Corporation has helped modernize traditional farming practices in the country to boost farm yields. Now one of the nation’s largest companies, Engro is involved in a range of sectors, from food to energy. Talking to Upper Reach, CEO of Engro Corporation Mr. Ali Ansari stresses the vital role of the company in Pakistan’s growth.
In November, a Financial Times article stated that: “Engro and other equally impressive local companies are the country’s best hope for growth.” How has Engro been instrumental in the nation’s development in terms of market capitalization, vertical integration and corporate governance?
The story of Engro is one that has remained intertwined with the growth of the country. Ever since its inception, Engro has evolved into an influential conglomerate known for its commitment to highest standards, delivering excellence in every aspect of our business. Over the course of our growth we have strategically made investments in sectors that take advantage of the country’s core economic strengths. With a market capitalization of USD 484 million as of December 2012 our growth has been instrumental in developing the local economy.
In the year 2010 we furthered our strive for innovation and excellence by expanding the scope of instruments available to companies in Pakistan looking to raise capital. The financial market in Pakistan received a significant boost through the launch of Engro Rupiya certificate – a first of its kind corporate bond issued directly to retail investors, offering them rates of return that are normally not available to the average investors.. The Engro Rupiya, launched originally in October 2010, managed to raise Rs. 4 billion from a wide spectrum of investors while the second issue raised a further Rs. 2.75 billion. Similar success was also met by subsequent Initial Public Offering (IPO) of Engro Foods and more recently Engro Fertilizers – the latter being over-subscribed during the book-building phase.
On the operational side of the spectrum Engro and its subsidiaries continue to create meaningful value by focusing on the philosophy of ‘inclusive growth’ that creates holistic and more encompassing growth for our suppliers and vendors. We believe that our growth in intrinsically linked to that of our suppliers and to this effect we have retrofitted our businesses to maximise value creation for a wide variety of stakeholders. Our flagship fertilizers has helped in saving foreign exchange to the tune of USD 444 million by producing 974 KT of urea alone whilst the farmers benefitted by an increase of Rs. 120 billion in their net income through use of our fertilizer products alone.
Similarly our dairy business has played a pivotal role in breaking traditional barriers and introducing innovative solutions to help dairy farmers pursue their growth whilst integrating over 200,000 farmers in the improved dairy value chain. Through our dairy interventions – including specific programs designed to improve milk yields and livestock health – these farmers have benefitted from improved yields of up to 20% leading to additional income of Rs. 8 million per annum for over 9,000 families whilst on average reducing the debt of farmers by 15%.
The story of our energy business is also another feat of excellence. Commissioned in 2010, the Engro Powergen Qadirpur plant is a 217 megawatt combined cycle power plant that runs on permeate gas resulting in approximately 467kT of reduction in carbon dioxide emissions. Moreover, our investments in Thar Coal Project – the 7th largest lignite reserves in the world – through our subsidiary Sindh Engro Coal Mining Company – is set to take centre stage in the local energy sector of the country. The investments in Thar can yield up to USD 50 billion forex savings via import substitution of RFO over the life of the project with the capacity to generate 10,000 employment opportunities through direct and indirect job creation.
Our rice processing business – managed by Engro Eximp – operates a state of the art rice processing facility that benefits over 14,000 rice farmers at the base of the pyramid through interventions aimed at increasing yield whilst reducing costs associated with crop farming.
With a firm commitment to Pakistan, Engro stands poised to continue its legacy of unrivalled growth and is confident that the future will lead it to bigger and bolder opportunities in all its core business areas.
Lack of energy supply has been one the greatest hindrances to economic development and to the growth of the industrial sector in Pakistan. Last year Engro Fertilizers had a difficult year as a result of the previous Government being unable to supply your new state-of-the-art fertilizer plant with adequate gas supply, which had a serious effect on production. Can you share your thoughts on how is Engro Fertilizers coping with the energy deficit situation; what is your view on the new Government’s commitment to reform, and what must it do different to its predecessors in your opinion?
Last year Engro faced an existential threat due to government’s default on its contractual obligations. Discrimination of the government leading to continued gas curtailment to Engro Fertilizer resulted in a cash shortfall of Rs. 10 billion which consequently impacted the profitability of Engro Corporation Given the existential threat of dwindling gas reserves, Engro Fertilizers is coping with the energy shortage by looking at alternate sources of gas availability. This essentially means that we are exploring non-network and non-pipeline, quality gas solutions to run our operations rather than relying completely on the network gas. Currently, most of the gas being consumed by the plant is from Mari field which is medium BTU and hence cannot be injected into the pipeline system. The previous government had approved a long term solution for the 4 SNGPL based plants which is currently being pursued.
The current government seems to be committed to reform and has taken some tough decisions but there is an apparent hesitation in carrying through all the decisions. However, in order to effectively resolve the gas issue a firm commitment is required. Moreover, the government must have a five-year strategy with annual milestones and then should religiously stick to pursuing these objectives to fruition; political pressure must be resisted during implementation. For instance the tax amnesty scheme is a step back and will not yield positive results for the corporate sector. Similarly, we believe that it is important to rationalize prices to imbue greater efficiency in the system rather than pursuing an ad-hoc formula for gas allocation.
With the establishment of Engro Powergen in 2008, it appears that you decided to take the matter of solving the energy crisis into your own hands, by seeking to help reduce the power shortage in the country. Can you explain why you decided to enter the energy sector and how you are contributing to the resolution of the energy crisis?
Engro Corporation is one of Pakistan’s largest homegrown multinational company. This gives us the responsibility of actively addressing the matters of national concern. Engro Powergen was established with the aim to develop power projects in Pakistan to help reduce the power shortage in the country and earn a competitive return for shareholders.
Engro Powergen seeks to reduce Pakistan’s power shortage through exploring and implementing cleaner, efficient and economic methods of power generation. In this pursuit wind, hydro and solar power projects are being actively assessed as alternative energy options for Pakistan.
Engro Powergen Qadirpur Limited has a 220 MW power plant in Qadirpur. This is Engro’s first Independent Power Project (IPP) which utilizes permeate gasfrom the Qadirpur gas field thus helping reduce carbon emissions. This power plant is one of the first ‘green’ power plants in the country. Previously, owing to the lack of infrastructure this gas was simply being flared at the oilfields instead of being piped into the national gas grid. Our investment in setting up a power plant on this gas ensured availability of electricity to the national grid whilst also reducing country’s overall carbon footprint by over 467,000 tonnes of carbon dioxide equivalent emissions. The energy produced at the plant continues to provide electricity to over 700,000 households in a relatively environmentally friendly manner.
Given the fact that Pakistan’s energy crisis is in large part due to the unsustainably high cost of energy production, our plant has offered the country a cost saving of about Rs. 19 billion in generation costs since its inception. However, our pursuit of affordable energy options for Pakistani consumers is not restricted to the Qadirpur plant alone. Instead we are at the forefront of developing the coalfields at Thar to a steady stream of low cost electricity that can power Pakistan’s economy forward.
In collaboration with the government we are working to develop this vital resource. The Thar coal project is vital for several reasons. Pakistan’s main domestic hydrocarbon resource until now has been natural gas; but as the country’s gas reserves continue to deplete, the nation faces a significant drop in production capacity thereby worsening the energy crisis. Moreover, majority of the country’s energy needs are currently being met through imported sources which continue to cause a significant drain on the nation’s forex reserves. In 2012 alone the country had to spend Rs. 472 billion in the fiscal year to subsidize the sky-rocketing cost of energy in Pakistan. However, we are hopeful that once the Thar coal project kicks off we will be able to provide significant royalties over the life of the project followed by savings of USD 50 billion due to substitution of expensive furnace oil by affordable power generation using Thar Coal.
Mr. Azim Murtaza Khan of PPL told us that Pakistan should be working hard too in channeling its own indigenous resources, such as solar, wind, LNG, and LPG. How is Engro Powergen, looking at developing any of these resources, particularly the renewable or clean resources?
We need to address the chaotic and dysfunctional energy sector on urgent basis. An earlier Integrated Energy Plan (IEP) developed during the last government also awaits implementation. Our actions now need to be based on a vision that ensures energy at market prices under an unregulated regime and supportive of a competitive market environment. The focus has to be in parallel on optimizing gas being used in captive power plants and CNG including energy conservation.
Focusing on providing short-term resolution to the energy crisis, we have also received the approval to set up the first liquid natural gas (LNG) terminal in the country at an estimated cost of USD 150 million at Port Qasim Karachi. We are aiming to have the project operational under a year so that gas import could start at the earliest to reduce the energy crisis.
Engro Foods has grown to become a very important subsidiary of Engro Corp, accounting for almost a third of the conglomerate’s sales in 2012. In the food sector, you face stiff competition from Nestle Foods Pakistan, which became the second largest listed company on the Karachi Stock Exchange in November. What are the objectives of the company in terms of expansion and growth and how does it aim to compete with the likes of Nestlé in the future?
Since the inception of Engro Foods in 2005, we have remained firmly committed to our goal of serving Pakistan’s economy and our consumers with compelling brands unparalleled in quality, value and nutrition. Through the span of our existence we have delivered on our purpose-inspired growth strategy of elevating consumer delight through our innovative brand portfolio and cutting edge innovations. As Pakistan’s fastest growing local company with an investment of Rs. 13.8 billion into Capex and Rs. 5.6 billion into brands, the continued success of our brands over the years has fuelled growth within the country’s socio-economic fabric.
Despite the challenges in the local business climate, we maintain a positive outlook on the business opportunity that the country represents and we continue to focus on business expansion opportunities, while we monitor our competitive landscape, we believe that in the dairy sector of the country our main competition remains the loose milk category which accounts for the lion’s share of the dairy sector – standing at a staggering 92% with the packaged sector only accounting for 8%. In addition, our unique value propositions resonate well with our consumers and we aim to maximizing the consumer utility of our brands. In the year 2013, we were the first ones to introduce the new ‘ecolean’ packaging format which not only created competitive edge but also added to consumer convenience and value.
Building on this promise of pushing the boundaries, we believe that as a local foods conglomerate with our grounds firmly rooted in the country, and coupled with our emphasis on brand differentiation and product innovation, we stand poised to leverage on the strengths that the country has to offer. The growing population, the changing urban landscape, increasing middle-class population are all strong indicators that will continue to fuel the consumer and lifestyle industry in the years to come and offer significant growth opportunities not only to Engro Foods but also other players in the market.
Engro Foods has now ventured into the North American market, starting from Halal Foods category. Engro Foods Canada and subsidiary Engro Foods USA intend to aggressively grow the business in this market. Can you tell us about Engro Food’s expansion into the North American market and plans you have for further global expansion?
Our phenomenal success in the local foods sector set the pace for our international growth trajectory, furthering our vision of ‘elevating consumer delight’ not only for the local Pakistani audience but extending the benefits to a much wider global audience. Our international expansion into the North American market is reflective of two key focus areas, (a) spotting and seizing the right business opportunity and (b) learning experience for deploying and delivering to an international audience. Going forward we plan on consolidating the benefits that our brands continue to provide to a much diverse audience in this international market whilst also focusing on developing a holistic strategy to further tap into the consumer base and provide them with solutions that are in sync with their demands and requirements.
Engro Corporation Limited is ranked as Pakistan’s leading company for Corporate Social Responsibility. You have made an invaluable contribution to the communities in which you are present, for example by building and providing infrastructure for schools, training teachers, running health programs, and improving access to water and sanitation. Can you please explain the importance of your CSR work and give examples of some of your most important programmes and initiatives?
At Engro we believe that we have an inherent responsibility to uplift societies and communities that continue to host us. To us CSR is not merely establishment of schools and physical infrastructure, but rather a two-pronged approach to improve the communities that host us through pursuing an inclusive business strategy whilst also undertaking strategic community investments. We have further integrated our philanthropic and CSR-focused efforts at the group level by establishing the Engro Foundation that represents the single-front of all CSR related activities of Engro and its subsidiaries.
To achieve our vision of inspiring social change and ensuring sustainable economic growth, we have forged strategic networks with development agencies to ensure easy access to improved basic amenities in marginalized communities including health, infrastructure, water and sanitation; education and skill development; and environment and livelihoods training. Through our efforts we have established a network of 11 Katcha Schools that continue to provide educational facilities to the most impoverished communities that host our plant and facilities. Moreover, through an additional network of 13 CAER schools and adoption of NGO-schools we continue to provide basic educational facilities to over 4,400 students.
In addition our emphasis on strategic community investments have resulted in establishment of a state-of-the-art vocational training college at Daharki to train the local youth and provide them with the necessary skills to improve their quality of life and seek better employment opportunities.
Our various business factions continue to work closely with Engro Foundation to implement programs that help develop the upstream and downstream value chain. Some of these flagships projects include the Khushaal Livestock Project – aimed at providing imparting best practices to livestock owners to help them improve yield and quality of produce – and the Women Empowerment for Livestock Development (WELD) – a program that focuses on empowering rural female workforce by providing them the opportunity to earn for themselves and secure a better future for their families. The WELD program has worked across Punjab and Sindh to establish female entrepreneurs referred to as Female Village Milk Collectors (FVMCs) and Female Livestock Extension Workers (FLEWs). To date more than 7,000 females have benefitted from the program and have been integrated in the dairy-value chain.
Moreover, our efforts aimed at providing basic healthcare to the communities that we host has culminated in positively impacting lives of over 45,000 patients whilst the snakebite centre has catered to over 50,000 patients in the past 5 years alone.
Going forward we continue to maintain our focus on inspiring meaningful change in the communities that we operate through targeted programs that will help deliver make a difference and inspire change through CSR initiatives aimed at ensuring sustainable development, economic intervention, humanitarian involvement, environmental protection and social responsibility.