Pakistan’s fertilizer industry globally compatible, can thrive in deregulated regime: CFO Engro

October 20, 2021: Chief Financial Officer (CFO) of Engro Fertilizers Imran Ahmed Wednesday said Pakistan’s fertilizer industry was internationally competitive and could thrice in a fully deregulated environment, even without any subsidies.

Talking to media here, he said currently the fertilizer industry of Pakistan was providing urea at a significant discount of Rs 5,000 per bag compared to imported urea.

By deregulating the industry and introducing weighted average cost of gas (WACOG) for all manufacturers, including indigenous gas and imported RLNG-based plants, he said, the government could earn higher revenues and reduce the country’s fiscal imbalance.

He said higher gas revenue of Rs 89 billion from the fertilizer industry could fund the targeted subsidy of around Rs 65 billion for small landholders. Around 90% of the farmers own around 48% of the land, with a size of less than 12.5 acres.

“In the post deregulation, the government can utilize the benefit of reduced subsidy on feed gas to offer targeted subsidy to small farmers,” he said, adding the removal of feed gas subsidy on production of urea and DAP would not have a significant impact on the prices of major crops and resultant expenditure of family households in Pakistan.

Imran pointed out that the fertilizer industry was often accused of earning excessive profits; however, a sector-wise review over the last 10 years revealed that the returns had been lower than many other industries.

During this period, he said the industry made an investment of Rs 162 billion in capacity expansions and plant up-gradation under the highly effective Fertilizer Policy 2001 that helped Pakistan to become self-sufficient in urea production.

As a result, farmers remained shielded from COVID-induced shocks in global urea prices that surged by 86 per cent for the last one year.

“Despite introduction of the Fertilizer Policy, return on assets for the fertilizer sector have remained lower than other sectors. The return on equity and return on assets of the fertilizer industry at 33% and 11%, respectively, are lower than many major industries, including food and personal goods, automobiles, and oil exploration and production. The return on equity and return on assets for other industries are as high as 67% and 19%, respectively,” he said.

On the other hand, the CFO said the fertilizer industry played a critical role to ensure the food security of Pakistan by providing adequate and affordable supply of urea.

He was of the view that the government was providing the industry a feed gas subsidy on spot basis of Rs 842 per bag, while the industry was passing on six times more benefit to the farmers through a discount of Rs 5000 per bag, compared to the international levels.

Through import substitution, he said, the fertilizer sector would contribute more than $3 billion towards reducing the trade deficit in 2021.

As a result of the significantly lower prices, Imran said the local fertilizer industry would save farmers from an additional burden of Rs 363 billion in 2021 as well.

He said 96 per cent of the income attributable to shareholders of the fertilizer companies was contributed towards national exchequer last year.

APP