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February 16, 2011

Engro remains unsure about Pakistan’s economy

Islamabad

 
February 16, 2011

KARACHI: Engro Corporation remains unsure about Pakistan’s economic trajectory as the country battles militants and tries to contain a growing fiscal deficit, a top company official said on Tuesday.
“Nobody knows what will happen in the coming months,” said Ruhail Mohammad, Engro’s Chief Financial Officer. “I have my numbers worked out. I know where sales and profit will be. But things are changing so fast that being sure remains almost impossible.”
Political and economic events of the past six months that saw the government retreating on key reforms such as raising taxes and cutting borrowing from the central bank have left businesses without a firm outlook, he said.
Although Engro posted a 79 percent rise in yearly profit to Rs6.8 billion in 2010, it continues to face problems, he said. “The policy of gas curtailment to fertiliser-makers is unjustified. The government has given us a commitment for uninterrupted supply, especially for the new plant.”
Expansion of Engro’s flagship fertiliser plant completed last year. The corporation can now produce 2.3 million tons of urea annually.
Mohammad, who was briefing journalists a day after the announcement of corporation’s financial results, said that Engro has no problem with increase in the price of gas that is used for making fertilisers. “The government must increase the price of fertiliser. We have been saying it for the last two years,” he said. “The agricultural products such as cotton, rice and wheat have seen a substantial increase in price. Farmers have the capacity to absorb rise in cost of urea.”
He, however, said that contractual obligations must not be breached once it comes to the additional capacity of 1.3 million tons, which the corporation has recently added. “For this project, we were offered gas at concessional rates for making the investment.”
The price of feedstock gas, which is used for making fertiliser, is subsidised by the government

through a controversial method of making textile and other industries pay a higher price for the fuel. This has been a bone of contention for years.
“The government will be giving Rs37 billion in subsidy on urea in 2011,” he said. “There is no justification for this at all.”
On the other hand, curtailment of gas, which is basically a raw material for fertiliser, brings down production and leaves the manufacturers with no option but to raise prices to make up for the lost sales, he said.
He said the corporation plans to list Engro Foods, Engro Energy and Fertilisers at the stock exchange this year.
Mohammad said that work on Engro Energy’s venture into mining of coal at Tharparkar, Sindh, for power generation continues. “China is showing a lot of interest in the project. Financing won’t be an issue.”
The corporation will need between $300 million and $350 million for the Thar project by the end of 2012, he said.
“We have been cited as a heavily indebted group but if you look at the books closely we generate Rs35 cash for every Rs100 of debt. I think that gives us a lot of room to easily pay off the loans.”

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