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Imran Ahmed: An eye for opportunity

Imran Ahmed: An eye for opportunity

Imran Ahmed: An eye for opportunity

Imran Ahmed, chief financial officer of Engro Fertilizers. Photo: Mian Khursheed

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By improving its production efficiency, fertiliser industry can contribute up to $1 billion annually to the national exchequer, a senior official of Engro Fertilizers, said.

“By exporting 0.8 million tonnes of urea we can earn in the range of $500 million to $900 million, depending on the international prices. But by de-bottlenecking the production capacity the export proceeds can easily reach around $1 billion/annum,” Imran Ahmed, chief financial officer of Engro Fertilizers, said

“Besides improving gas monetisation and increasing the efficiency of our products, we are also looking forward to the Fertiliser Policy 2022, which will be a key enabler for our future growth,” he added.

Talking exclusively to BOL News, Imran Ahmed said that Engro Fertilizer is one of the leading urea manufacturing companies in Pakistan and, since its inception, it has come a long way to improve food security by meeting the fertiliser requirements of the country.

We talked to him about the present state of the fertiliser industry and what sort of challenges and opportunities exist in this sector.

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What challenges are you facing after joining Engro Fertilizer as CFO?

After working for over 15 years in the petroleum sector, obviously, I was expecting a lot of challenges when I joined Engro but instead of challenges I see a lot of opportunities. Since taking up this job, I am exploring these opportunities and some of them will transpire into real businesses in the days to come, InshaAllah.

What is your take on the general perception of working in a highly subsidised fertiliser sector?

Over the last few years, the fertiliser sector has grown manifold and continued to play a pivotal role in the country’s agricultural growth. We strongly believe that the Fertiliser Policy 2001 introduced by the then government was one of the most effective policies one can imagine. In this policy it was clearly written that selling price of fertiliser shall remain deregulated on the understanding that while manufacturers will allow free market forces to prevail they will pass the benefits in the form of lower price of fertiliser to the farmers. The industry has over the past years passed on manifold to the growers.  However, in the country, many sectors, despite getting a lot of subsidies and support from the government, don’t pass on the benefit to the end consumers.

Contrary to many other sectors, the benefits given by the fertiliser sector is quite visible as we’re selling urea at 85 per cent discount over the international import parity. One bag of urea sold at Rs10,000 discount over import parity and the subsidy we’re getting from the government is Rs800/bag. This year alone farmers will benefit by more than Rs350 billion in the form of significantly lower prices compared to the global levels. Further, there is clear data that this has almost always been the case over the past many years.

How much urea is required in Pakistan?

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At the back of agri friendly policies of the government, the demand of urea in the country has recently grown to 6.2 million tonnes, whereas the production capacity of industry right now is 7 million tonnes, which means that we have a surplus capacity of 0.8 million tonnes. The fertiliser sector is requesting the government to allow this excess quantity to be exported so we can bring the much-needed foreign exchange to the country.

What is keeping Engro Fertilizer away from entering in the DAP business?

When Fauji Fertilizer Bin Qasim decided to start the DAP business, we were expanding our urea business. Fatima Fertilizer apart from urea also produces calcium ammonium nitrate, nitro phosphate and nitrogen phosphorus potassium. This shows that all companies have different product mix and business models. As per our findings, urea will remain the major fertiliser for the farmers and that’s why we invested $1.2 billion on a new plant 10 years ago to enhance our production capacity. Just because of that the country has surplus production capacity of urea.

How much Engro Fertilizer has to suffer due to gas outages?

To be very honest, a few years ago, Engro was on the verge of bankruptcy. In 2015, we were forced to do rescheduling and restructuring of our loans to avoid a default. But thanks to the then government that a tripartite arrangement was introduced, under which the Sui Northern Gas Pipelines Limited’s responsibilities to provide gas prospectively were shifted to Mari Petroleum Company Limited (MPCL), which has been providing us the required gas since then. However, that experience made us cautious investors and now we think twice before committing to a new investment plan or a project.

Do you have any fear or see a risk owing to depleting gas reserves?

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Various studies from the government and private sectors suggest Pakistan is short of gas but not for low BTU gas. There are different kinds of gases, Pipeline Quality Gas, which is being used in stoves but it’s not a gas we generally use to produce urea. There are significant unexplored gas reserves of low BTU. With so much unexplored gas reserves, which is good for the fertiliser sector, I think there is no shortage of low BTU gas in the country.

Secondly, we have reasonable confidence that there will be no gas shortage for the fertiliser sector. A discussion regarding Weighted Average Cost of Gas (WACOG) is in progress, under which the cost of all gases will be combined and then one cost will be determined. We’re advocating for WACOG and asking the government not to give us gas on subsidised rates as unlike other industries, we’re a globally competitive industry.

We believe that instead of subsidised gas, the government should give the fertiliser industry gas at WACOG pricing and allow it to operate through a free market mechanism. It is not something new as even it is written in the Fertilizer Policy 2001 that the price of fertiliser should be determined by the market forces so that the industry can prosper.

Do you think the government will allow you to fix urea prices?

Let me tell you that out of the total agricultural land in the country, around 50 per cent is owned by 10 per cent of feudal and big corporate farms owners, whereas the remaining of the 50 per cent is owned by 90 per cent of the small farmers. So we’re very strong proponents of giving direct subsidies to the small farmers who constitute 90 per cent of the farming community. But since subsidy is being given to the whole agriculture sector, the Zamindars and corporate farmers are reaping 50 per cent share of the benefit. We also think that the government should give subsidies to progressive growers who show the desire to invest in modern farming practices and can help eradicate the agri imports for the country. But, unfortunately, in Pakistan, subsidies are initially given as a necessity, which then later become an entitlement and this has been going on for decades.

What do you think is needed to attract more investment in the fertiliser sector?

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The fertiliser sector has many products, the major ones are urea and DAP but there are other products, as well. As I said earlier, if the government allows us to export surplus urea it will give a huge boost to the industry and by incrementally importing some advanced and state-of-the-art machinery it can even increase the surplus quantity for export from 0.8 million tonnes to 1.2 million tonnes in a short span of time. As far as other fertiliser products are concerned, we’ve to look at the economic viability and demand of that product, because sometimes imports are a more feasible option than the manufacturing because of the economics. But if the government feels that any other fertiliser product can generate the demand in the local market and increase the yields/acre of the crops, then it deserves subsidy and tariff protection for initial few years till it will become competitive.

If surplus urea exports are allowed, how much foreign exchange this industry can generate?

By exporting 0.8 million tonnes of urea we can earn up to $900 million, depending on the international prices. But by de-bottlenecking the production capacity the export proceeds can easily reach up to $1.2 billion/annum.

How do you see the investment climate in the country?

In my opinion, right now the government is considering giving industry must requisite boost. Let me inform you that there are discussions in progress to introduce a petrochemical policy and a new fertiliser policy to attract local and foreign investments. The positive aspect of the government initiatives is that it is approaching all the stakeholders and incorporating their suggestions in the policy framework. A recent example is the textile sector, which has witnessed a boom.

The way new entrants in the auto and mobile phone sectors are generating returns helps improve the investors’ confidence.

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After selling food business, is Engro Fertilizer introducing any new products?

For Engro Fertilizers gas monetisation and increasing the efficiency of our products are amongst the priority areas. We are also looking forward to the Fertiliser Policy 2022, which will be a key enabler for our future growth. The government is already in the phase of drafting that policy in consultation with all the stakeholders and it is expected to be announced soon in the coming year.

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