Engro to Make Fertilizer Overseas as Gas Crisis Curbs Production

Engro Corp. (ENGRO), Pakistan’s second- biggest business group, will expand food and energy production and make fertilizer overseas to reverse a slide in earnings as a record energy crisis curbs operations at home.

Engro’s fertilizer business is constrained by the shortage of gas in Pakistan, and it “makes no sense” to put in further capacity in the South Asian nation, Chief Executive Officer Muhammad Aliuddin Ansari said in an interview in Karachi yesterday. The company is “working with the government” to tackle the problem, he said.

Engro, which recorded its first quarterly net loss in the three months ended March 31, spent $1.1 billion to build a fertilizer plant in the southern city of Daharki that opened 18 months ago as demand for crop nutrients expands in rural Pakistan. The company aims to produce the chemicals in gas-rich nations as the fuel shortfall cuts production. Demand for gas in Pakistan, where farming employs more than 45 percent of the workforce, exceeds output by as much as 15 percent, according to the central bank.

“The company’s biggest challenge is gas supply,” said Farrukh Hussain, who oversees $80 million in stocks and bonds as chief investment officer at BMA Asset Management Co. in Karachi. “If this bottleneck is cleared up and the company is able to get even somewhat less than the agreed gas allocation, Engro is a king in the market.”

Engro’s shares have surged 46 percent this year compared with a 27 percent advance in the benchmark KSE100 index. The stock fell 1 percent to 104.01 rupees on the Karachi Stock Exchange yesterday.

Gas Fields

Pakistan’s government has decided “in principle” to grant Engro Fertilizer the Reti-Maru and the Sara West gas fields in southern Pakistan and the company has asked for the remainder of its gas allocation to be given from the Latif gas field, Ansari said. All three fields are located in the southern province of Sindh, within 60 miles of Engro’s plant in Daharki. “We’re waiting for the final yes or no,” he said.

Once the gas issue is resolved, the group plans to hold an initial share sale for its fertilizer company, he said.

Engro, which produces urea, dairy products and plastics, posted a net loss of 649.5 million rupees ($6.87 million) in the three months ended March 31, compared with a profit of 2.1 billion rupees a year ago, because of lower urea sales and financial costs.

The first-quarter results were “behind plan,” said Ansari, 49, who took over as CEO in May. “The fertilizer business isn’t going to have a spectacular year but the food business is going to do very well.”

New Products

Engro Foods, the nation’s biggest producer of packaged milk with a 45 percent share of the market and a quarter of the ice cream trade, may introduce as many as 13 new products and lines, Ansari said. The food business may become the largest segment by profit and sales and will be the dominant area in the next five years, he said.

Engro Fertilizer has 67 billion rupees in debt, according to Ansari. The company has kept its commitments on loan repayments so far “but debt can’t be serviced in the current structure if we don’t get the gas,” he said.

Engro plans to build a factory in North Africa within the next two years and will seek partners to invest between $500 million and $1 billion, Ansari said, without giving details. In Algeria, Engro is considering setting up a urea plant and is evaluating Tunisia and Morocco for a factory producing di- ammonium phosphate, a type of fertilizer, he said. Fertilizer produced at overseas plants would be shipped abroad.

Gas Surplus

“There are large gas surpluses in Algeria and we’re also looking at Tunisia and Morocco,” Ansari said. “We’ve analyzed Central Asia and in East Africa we’re very interested in Mozambique.”

The Sindh Engro Coal Mining Co., 60 percent owned by Engro and the rest by the provincial government, plans to develop a coal mine with an investment of $1.3 billion, he said. The company has 2 billion tons of certified coal reserves in the south-eastern Thar desert and was granted a mining license three months ago. The mine will take 3 years to develop.

The company will raise 70 percent of the financing through Chinese government institutions and the rest will be invested by the Sindh provincial government and partners brought in by Engro, Ansari said.

To contact the reporter on this story: Naween A. Mangi in Karachi, Pakistan at Nmangi1@bloomberg.net.

To contact the editor responsible for this story: Andrew Hobbs at ahobbs4@bloomberg.net.

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