Interview with Mr Nadir S. Qureshi – Chief Executive Officer, Engro Fertilizers Limited
He holds an MBA from Harvard Business School and Bachelors and Master Degrees in Nuclear Engineering from MIT.
PAGE: Can you please share as to whether Engro is doing something to improve the productivity of agriculture sector in the country?
Nadir S. Qureshi: Engro has been a trusted partner of Pakistani farmers for the last 50 years and has directly contributed towards their well-being and helping farmers grow has been an integral part of our philosophy and purpose. Statistics show that yields of major crops in Pakistan have remained below peer averages and one of the reasons is the lack of application of balanced nutrients as required by crops for optimum growth. On this front, Engro Fertilizers, being passionate about transforming the agricultural landscape of the country, has made significant investments to promote use of balanced nutrients in the country.
Being the first urea producer in Pakistan, we have continued to introduce new products and services to help Pakistani farmers to fulfill their potential. Today we are the only company providing seed to harvest solutions to our farmers. The latest introduction is Zabardast Urea, a unique blend of urea and bio-active zinc specially developed for Pakistani farmers that improves farm yields very significantly while reducing their total input costs.
We also have a range of value-added fertilizers that include Zarkhez Plus specifically designed to improve quality and yield of our crops through better nutrient use efficiency.
Lack of use of quality seeds is a key challenge to crop yields in Pakistan. To address this, Engro Fertilizers has introduced a range of quality seeds for wheat and rice crops. We are committed to bringing the latest seed production technology to Pakistani farmers in the near future.
Besides providing quality products to our farmers, we also provide services in the field related to crop advisory, soil and water testing. We have one of the largest teams of qualified and trained agronomists in the field to provide advisory services to the farmers. This free service is highly appreciated by the farming community. Similarly, we have invested in a network of labs across the country that provides free soil testing facilities to our farmers. Recently, we have also introduced Mobile Lab that provides soil sampling service at farm gate. We analyze more than 30,000 samples annually free of cost. This service has enabled our valued customers to better tailor the nutrient profile required by their soil leading to improved agricultural productivity of their lands.
PAGE: How do you compare the returns of fertilizers sector with other large sectors highly capital intensive industries?
Nadir Qureshi: Industries in the power sector as well as Oil Exploration & Production entities aided by favorable government policies have been making comfortable returns on equity owing to a model of returns fixed in dollars.
Other sectors such as cement and automobiles that have heavy asset bases and operate in deregulated markets have historically earned over 12% return on assets which is higher than the fertilizer sector.
In comparison, local fertilizer players whom have collectively invested close to US$2 billion in the last decade alone in state-of-the-art production facilities barely achieve Return on Assets. It is these assets that have enabled Pakistan to become self-sufficient in the urea market leading to food security in the country as well as aided in significant foreign exchange savings of over a billion dollars a year.
PAGE: It is believed that fertilizers sector has enjoyed the benefit of cheaper gas while not passing any benefits to the farmers – can you please provide your comment on this?
Nadir Qureshi: Engro Fertilizers, apart from its focused social sustainability efforts, has placed an increasing emphasis on ensuring positive farm economics.
This is evident from the fact that local urea is sold at a significant discount to its international prices. Take a look at the historical data, the fertilizers industry has passed on to farmers, more than two times the gas price subsidy benefit provided by the Government. Currently, our farmers get PKR 800 per bag cheaper urea as compared to international prices.
In numeric terms, despite significant delta vs international urea prices, the fertilizer industry continues to transfer benefit to the farmer, which translate into approximately PKR 20 billion per annum, over and above the feed gas price subsidy provided to the industry.
PAGE: Is it correct that one of Engro units is operating below optimum capacity utilization? If yes what are the reasons for this?
Nadir Qureshi: That is indeed true. Our base plant facility is operating at 65% level of its name plate capacity and the major reason for this is the short supply of gas.
If additional non-pipeline quality gas is allocated to our base plant in light of terms offered for fertilizers industry, Engro Fertilizers can annually produce approximately 350KT additional urea at the most efficient marginal energy index.
This additional supply of urea will not only bring balance to the local demand and supply of urea in the most economically beneficial manner but also develop the urea export potential of Pakistan. This will in turn provide tax revenue for the government and positively impact the trade deficit of the nation.
PAGE: Some analysts believe Pakistan can comfortably export one million tons urea and earn US$250 million foreign exchange annually, do you agree with this hypothesis?
Nadir Qureshi: As we stand today, annual local urea production capacity is around 7 million tons. In contrast, annual local urea demand is around 5.5 -5.9 million tons. Further, Pakistan is blessed with ample low energy value gas reserves with their most efficient use being a raw material for urea production.
This situation in itself presents a very attractive opportunity for Pakistan to generate exports of more than US$ 250 million annually. This model was proven in 2017 when the Government of Pakistan allowed such exports. Successful exports in that period proved that urea produced in Pakistan was competitive in global markets.
Another avenue that this opportunity opens up is that the tax revenue on these exports can be used to introduce the much talked about Smart Subsidy program for Small Scale farmers. This kind of targeted subsidy will improve livelihoods of small-scale landowners that constitute almost 90% of the total farmer population and would contribute to the overall betterment of the agri-landscape.
PAGE: Is it advisable to use ‘pipeline quality’ gas or RLNG for the production of urea, while gas available at Mari field is being supplied to power plants?
Nadir Qureshi: Urea manufacturing using RLNG is not economically feasible which compels the government to provide heavy subsidies to RLNG based urea producers. In the current year alone, the government has provided PKR19 billion subsidy to these manufacturers further aggravating the prevalent fiscal deficit
It is well accepted that the best and most efficient use of indigenous, non-pipeline quality gas is the production of urea.
Base plant facility of Engro Fertilizers currently operates at 65% of the name plate capacity can make use of non-pipeline quality gas from Mari field to produce additional 350,000 tons urea. Therefore, it is advisable that further gas available at Mari field is redirected from power plants towards the production of urea.
PAGE: You have been quoted as saying “Engro Fertilizers believe the doing good while doing well”– can you please share some examples?
Nadir Qureshi: Being a part of one of the biggest conglomerate in Pakistan, Engro Fertilizers has always believed that it is not just about financial growth and returns. We have always been a purpose driven organization and since inception it has been our endeavor to play our part in the betterment of Pakistan.
As a socially responsible corporate citizen, we believe in investing towards the betterment of the communities that we operate in. We invest close to one percent of our after tax earnings towards social responsibility projects.
We built what used to be the only snake bite clinic in a several hundred mile radius of our plant in Daharki, Sindh. While this center has provided free service for many decades, since 2005 alone it has treated over 100,000 people and I daresay saved their lives.
Our sponsored Technical Training Centre in Daharki, which provides three year diplomas in Associate Engineering in Chemical and Mechanical technologies, and other short term vocational training programs. The alumni pool for its 3-year degree program has surpassed 2,500 graduates.
Outside our plant, we operate the Sahara School that has an enrolment of over 500 students in each session and provides high quality education for the Jung village. Further afield, we operate 12 schools in the katcha belt of Sindh with a total enrolment of more than1,500 students.
Another initiative is the Project PAVE, which aims to develop seed value chain of rice, wheat and vegetables in Pakistan making it more inclusive to small holding farmers and women by building their capacities and providing market access. This project has achieved international acclaim and has won global awards.
On the environmental front, we have undertaken a challenging task to plant “One million trees” in Sindh, an effort that was recognized by the National Forum for Environment and Health.