During 1Q 2016, the Economic Coordination Committee (ECC) permanently re-allocated 60 MMSCFD gas back to the fertilizer companies to whom it was originally allocated, out of which EFert’s share was 12.5 MMSCFD. Throughout the year, EFert remained in discussions with the relevant parties for allocation of surplus gas to ensure continued two-plant operation. Recently, ECC approved the allocation of 26 MMSCFD to EFert. This allocation along with other available gas streams is now sufficient for two plant operations.

During the year, GIDC was struck down by the Sindh High Court being ultra vires, against which the Ministry obtained a suspension order. However, some clarifications are being taken from legal advisors and EFert is actively reviewing the position. Apart from this litigation, EFert also has a separate case for its concessionary gas allocated to it under the Fertilizer Policy. No payment of GIDC is made on concessionary gas on the basis that it would be in direct contravention of the Fertilizer Policy and its gas supply contracts on the basis of which EFert invested USD 1.1 billion for expanding its fertilizer manufacturing capacity.

Sales of blended & potash based fertilizers (Zarkhez, Engro NP, MOP/SOP) declined by 16% YoY during the year to 114 KT compared to 135 KT during 2015. Despite no subsidy on potash, overall domestic potash industry increased to 27 KT vs. 25 KT in 2016, due to lower international prices of SOP & MOP. Moreover, due to lower SOP & MOP prices, farmers switched from Zarkhez to straight potash fertilizers. Resultantly, market share of Zarkhez declined to 38% in 2016 (47% in 2015). However, overall potash market share of EFert closed at 48% (49% in 2015).

  • 16% YoY

    declined by (Zarkhez, Engro NP, MOP/SOP)

  • 114 KT

    compared during 2015

  • 38%

    Zarkhez declined in 2016

EFert produced 1,881 KT of urea, compared to 1,968 KT produced in 2015 i.e. 4% decrease in production mainly due to planned turnarounds in 2016. However, considering the oversupply situation, the sales volume remained 12% lower vs. 2015 i.e. 1,652 KT vs. 1,879 KT in 2015, leading to Engro’s urea market share declining to 30% from 34% last year. This was mainly due to reduction in production share from 37% last year to 31% in 2016 on account of higher production by other fertilizer manufacturers, due to LNG and increased gas availability.

  • 1,968 KT

    produced in 2015

  • 34%

    Engro’s urea market share declining

  • 31%

    account of higher production

Sales were recorded at 534 KT in 2016 - up 41% YoY compared to 391 KT in 2015, which also led to an increase in EFert’s market share to 24% vs. 22% last year. The increase in sales was a direct result of higher domestic off takes of DAP and sales push by EFert in 2016. The domestic industry increased from 1,814 KT in 2015 to 2,225 KT in 2016, on the back of subsidy on phosphates and lower international DAP prices. The international DAP prices which started from USD 400/Ton at the start of the year, averaged around USD 345/Ton during the year to close at USD 330/Ton at the end of the year.

  • 534 KT

    Sales were recorded in 2016

  • 22%

    increase in EFert’s market share

  • 330/Ton

    at the end of the year

For the Fertilizers business, the consolidated sales revenue for 2016 was PKR 77,415 million which was lower by 12% as compared to the PKR 88,033 million last year. The consolidated profit-after-tax for the year was PKR 9,283 million versus PKR 14,819 million in 2015. The lower profitability was primarily due to lower urea off take and multiple price cuts amid the industry oversupply situation. EFert continued to negotiate with its lenders and was able to bring down mark-up rates on its long and short term loans which helped reduce financial charges and augment profitability

2016 was a challenging year for the dairy industry both in terms of intense competition and taxation changes. Implementation of the Federal Budget for 2016-17 which included a change in the GST regime from Zero Rating to Exempt and imposition of Regulatory Duty @ 25% on import of dairy powder.

This has resulted in an increase in the cost of doing business which has temporarily affected industry growth. Also competition in the category remained aggressive with multiple new entrants spending heavily on all fronts.

Nara Dairy Farm continued to remain a rich and nutritious source of quality milk for the dairy segment. The farm currently produces 44,608 (2015: 35,095) liters per day with a total herd size of 5,626 animals of which 2,895 mature assets able to produce milk. On account of valuation losses due to falling international market prices of animals, the segment reported a loss of PKR 130 million in 2016 versus a profit of PKR 12.5 million in 2015.

During 2016, EFoods’ ice cream and frozen desserts segment further built on its success in 2015 and maintained growth momentum. 2016 saw promotion of mother-brand “Omore”, to re-vitalize the identity of the brand among the masses, along with innovation specific campaigns. Innovations continued to play a major role in achieving successes throughout the year, with a number of products making their mark across formats. The segment reported revenue of PKR 3.7 billion, recording a growth of 5% over last year. With reduced input costs and better controls, the segment recorded a profit of PKR 43 million in 2016 compared to a loss of PKR 75 million in 2015.

The Specialized Tea Creamer category saw the rise of multiple mushroom players jockeying for market share and investing heavily on all fronts. The category growth in the second half of 2016 remained under pressure due to changes in tax regime followed by price increases which adversely affected growth of Tarang in 2016. Despite these challenges, Tarang continues to be the market leader and remains the most widely distributed UHT brand. Olper’s continued its trend of impressive growth over the past year despite a resurgent competitor with an aggressive strategy. EFoods continued to invest behind Olper’s positioning of being the drinking milk of choice for children to tap into the drinking opportunity. The brand remains the only player in the category with unique SKUs in all sizes, and is expected to continue its upward trajectory in the years to come. The Dairy and Beverages segment reported a topline of PKR 40.7 billion registering a decline of 13% over last year. Segment contributed PKR 2,484 million to EFoods’ profitability as compared to PKR 3,227 million during 2015.

EEAP achieved a total husking of 7,253 tons of paddy and processed 13,860 tons of rice. It also exported 8,970 tons of rice during 2016 and made branded sales of 3,577 tons.

EEAP posted a loss-after-tax of PKR 478 million for 2016 against a loss of PKR 4,517 million during 2015. The previous year’s loss was mainly on account of an impairment charge of PKR 3,384 million against its rice processing plant and spares. Current year’s loss was significantly lower because of the business restructuring decisions taken during

2015, which helped in decreasing fixed costs, improving operational efficiencies and margins as well as reducing commodity price risk exposure.

During the year, an external quality audit by Bureau Veritas for quality re-certification was successfully completed and improved EEAP’s rating from ‘B’ to ‘A’. EEAP has the highest number of quality certifications amongst rice players in Pakistan.

Engro Powergen is a wholly owned subsidiary of Engro Corporation and has been established with the primary objective to analyze potential opportunities in the Energy & Power sector and undertake new projects across the value chain. Engro Powergen owns and operates Engro Powergen Qadirpur Limited (EPQL) - a 217 MW combined cycle power plant, and has also ventured into a Thar Coal Mining project with the Government of Sindh as the majority

shareholder by forming the Sindh Engro Coal Mining Company (SECMC). Further, Engro Powergen Thar (Private) Limited - was incorporated in 2014 to set up a 2 x 330 MW power plant based on Thar coal. Engro Powergen is also a 45% equity partner in GEL Utility Limited (GEL), Nigeria, a 72MW triple redundancy captive power plant, which commenced commercial operations from 2014.

EPQL is a unique project as it converts permeates gas (low-BTU and high sulphur content gas) which was previously being flared, into much needed electricity. Electricity generated is transmitted to the NTDC under the Power Purchase Agreement. EPQL has a Gas Supply Agreement with Sui Northern Gas Pipelines Limited (SNGPL), for allocation of 75 MMCFD permeate gas from the Qadirpur gas field, for the term of the project. Due to the unique nature of fuel supply, EPQL faces a significantly lower risk of gas curtailment. Although the existing source of gas supply from the Qadirpur gas field may deplete over the life of the project, EPQL is isolated from the effects of gas depletion as its agreements allow it to comingle fuel i.e. run on both gas and HSD. Further under the terms of the Implementation Agreement, the GoP is obligated to reimburse EPQL for fuel conversion costs and subsequent operations on alternate fuel as a gas depletion mitigation option. EPQL has commenced work on finding a long-term alternate fuel option.

During 2016, EPQL demonstrated a billable availability factor of 100.3% compared to 99.7% last year. It dispatched a total net electrical output of 1,265 GWh to the national grid demonstrating a load factor of 67.2% compared to 76.7% last year.

The decline in load factor this year was primarily on account of power purchaser’s auto transformer issue which caught fire and went out of operation on January 21, 2016. As reported earlier, this incident impacted power evacuation in the region in which the Plant operates. Following the incident, the Plant remained on standby mode until the completion of transformer repair and resumed its normal operations from April 29, 2016 onwards. However, the Plant was entitled to full Capacity Purchase Payments (CPP) throughout the period as demonstrated by the billable availability factor mentioned above.

For 2016, EPQL’s revenue was PKR 11,452 million compared to PKR 13,354 million last year. The decrease in sales revenue is mainly attributable to a decline in load factor with a corresponding decline in the cost of generation. EPQL earned a net profit of PKR 1,788 million for 2016 as compared to PKR 1,798 million last year. Overdue receivables from NTDC stood at PKR 2,353 million as on December 31, 2016 vs. PKR 1,691 million as on December 31, 2015. Similarly, overdue amount payable to SNGPL on December 31, 2016 was PKR 597 million vs. PKR 583 million in 2015.

The Wind Power plant has been commissioned during the year ahead of plan. Engro Powergen is the Project Manager and Owner’s Representative for Tenaga and has now been awarded the Asset Management contract for a period of two-year post which it will assume the position of O&M contractors. Engro Powergen, capitalizing on its successful delivery on Tenaga signed another Project Management contract and is in negotiation to sign an Owner’s Engineer contract in Wind Power space.

Commercial operations of GEL were achieved in November 2014. This was preceded by Engro’s O&M team taking control of the facility. During 2016, the O&M team deployed at GEL plant successfully completed two year of operations. The plant achieved an annual availability of 99.9%.

  • PKR 1,788 million

    EPQL earned a net profit

  • PKR 2,353 million

    Overdue receivables from NTDC

  • PKR 597 million

    overdue amount payable to SNGPL

thar coal project

Engro remains at the forefront of solving the national energy crisis by commencing groundwork on Thar Coal Project. The Thar coal field has estimated lignite reserves of 175 billion tonnes, equivalent to total oil reserves of Saudi Arabia and Iran combined and can be used to

produce 100,000 MW for 100 years. Engro has ventured into both mining and power generation projects in the Thar coal field to use indigenous national resources to alleviate the energy crisis in the Country.

During the year, SECMC completed all conditions precedent under the financing agreements and achieved financial close on April 4, 2016. Consequently, notice to commence was issued to EPC contractors (China Machinery Engineering Corporation and China-East Resources Import & Export Company) who have been mobilized on the site.

Round the clock overburden removal began in May and current progress is ahead of schedule with ~15 M BCM of overburden removed as of Dec 31, 2016. This is in addition to the 4 M BCM that was removed prior to financial close.

Major milestones have been achieved on the mine dewatering infrastructure projects. Drilling of all 27 wells has been completed which has enabled SECMC to start dewatering of 3 aquifers by first quarter of 2017. SECMC also took up the construction of the Effluent Disposal Reservoir at Gorano. Gorano reservoir is 80% completed and is ready to receive water.

Efforts for land acquisition continued for approximately 6,000 acres of Phase-I, approximately 5,400 acres of Phase-II and 530 acres for Gorano Reservoir. SECMC has deposited PKR 1,045 million with Revenue Department and ~2,574 acres privately owned land has been mutated in its favor. Remaining mutations are expected to be completed by the end of 2017. Project cost for Phase I was firmed up at USD 845 million. Out of this, USD 211 million is to be raised through equity while USD 634 million is to be financed through debt. One new equity partner - Huolinhe Open Pit Coal (HK) Investment Company Limited (HOCIC) - was inducted during the year and preference shares worth USD 3 million has been issued in favor of HOCIC, resulting in total equity of USD 74 million being raised to date. On the financing side, four drawdowns under the USD facility amounting to USD 9.6 million were made during the year. The drawdowns were made to make payments for milestones achieved under the EPC contract. Further, three drawdowns under the PKR facility amounting to PKR 11.4 billion were also made during the year. First payment of interest and commitment fee against both USD and PKR facilities were also made during the year.

During the year, EPTL achieved Financial Close on April 4th, 2016. Subsequently, notices to proceed were issued to EPC contractors (China Machinery Engineering Corporation and China-East Resources Import & Export Co.) and Supply and Services contractor (Engro Powergen), thus enabling their mobilization on site.

Since the notices to proceed, EPTL has made substantial progress on all EPC fronts. Basic Engineering of the project has been completed while Detail Engineering is currently under progress. Target completion for Detail Engineering is Mid 2017.

On the procurement side, progress is ahead of plan as most purchase orders have been placed ahead of schedule to expedite the project. EPTL has received its first major partial shipment of Boiler steel structure in December 2016. Construction activities are also ahead of schedule.

EPTL’s project cost is expected to be ~ USD 1,108 million of which ~USD 831 million is to be arranged through debt while ~ USD 277 million in the form of equity based on a debt to equity ratio of 75:25. Engro Powergen will be the majority ordinary shareholder in the project with a proposed 51% common equity investment. Rest of the equity is planned from the CMEC Thar Power Investments Limited and other local investors (Habib Bank Limited and Liberty Mills).

During the year, equity contributions by sponsors were made on pro rata basis. Total equity amounts to USD 156.2 million at the end of 2016. In the same period, EPTL made drawdowns of USD 114.5 million under the USD facility, and a total drawdown of USD 38.8 million under the Rupee Facility Agreement, National Bank of Pakistan (NBP) Bilateral Facility Agreement and Islamic Facilities Agreements, bringing the total of debt drawdowns to USD 153.3 million

In 2016, domestic PVC market posted a healthy growth of ~ 17%. Pipes and fittings continued to dominate the PVC market. PVC pipes and fittings are gaining rapid acceptance in residential and commercial construction projects. Strong demand from the construction sector combined with increased consumption of PVC pipes in government and large scale infrastructure projects contributed towards significant growth in domestic PVC sales to 167.8 KT in 2016 vs. 151.6 KT last year. Domestic PVC is manufactured solely by EPolymer which sells under the brand name of “SABZ”. EPolymer captured substantial volumetric growth in sales (~80% market share), which was primarily driven by increased penetration in the domestic market and import substitution. PVC scrap imports were estimated to be approximately 4.8 KT in 2016, which is an estimated decline of 20% from 2015. Low differential between resin and scrap price encouraged scrap manufacturers to consume resin, which supported EPolymer sales in the domestic market.

Manufacturing demonstrated improved productivity in 2016. PVC production stood at 172 KT, VCM at 174 KT, while Caustic soda at 103 KT. PVC and VCM production were the highest ever, however Caustic Soda production was lower due to a major repair at the power plant, which has now been concluded.
In the Caustic Soda segment, EPolymer sold 83 KT in domestic Caustic Soda market during the year, which is consistent with last year, with a market share of 32% in 2016. Despite competitive market dynamics, EPolymer maintained its position as the leader in the South Caustic Soda market.
EPolymer posted a profit-after-tax of PKR 660 million in 2016 as compared to a loss after tax of PKR 644 million in 2015. Improved PVC sale volume, better business efficiencies, strict cost controlling measures, coupled with healthier core margins on vinyl chain translated into positive earnings despite compressed margins at Caustic Soda due to competitive market dynamics.

During the year, the terminal handled 44 cargoes and 2,713,303 MT of LNG. It delivered 131 bcf re-gasified LNG into the SSGC network adding approximately 138 billion BTUs of energy. EETPL continued to maintain 100% of RLNG regasification nomination given by SSGCL. Average utilization during the year was 99.4%.

EETPL has also successfully entered into an arrangement with SSGCL which will enable it to utilize its spare capacity of 200 mmscfd. The paperwork is currently underway. In this connection, EETPL was also able to negotiate an additional Performance Bond facility with NBP of USD 5 million. Furthermore, it has also completed physical completion exercise of its LNG Terminal project which is a significant milestone under the financing agreements with Project financers. The financial completion of the aforementioned project is yet to be achieved. The company reported revenues of PKR 9,196 million vs. PKR 7,768 million in 2015, posting profit after tax of PKR 1,450 million vs. PKR 1,800 million in 2015.

During the year, Engro Vopak completed 19 years of safe operations without any lost work injury. The terminal achieved 2nd position in the EMEA division in Vopak’s Annual Customer Survey for Net Promoter Score and 1st position for VSQI. EVTL also received service excellence award in EMEA division of Vopak. EVTL secured 98% score in THA audit which is currently highest score globally in the VOPAK World.

On the operational front, 227 KT of LPG and 682 KT of Phosphoric Acid were handled at EVTL, making these quantities highest tonnage handled for these products for a single business year in EVTL's history. Also, EVTL recorded highest ever volumes of chemical handled at site totaling to 1,411 KT vs. 1,286 KT last year. EVTL continued its stable financial operations with revenues of PKR 3,155 million vs. PKR 2,599 million in 2015, posting profit-after-tax of PKR 2,005 million vs. PKR 1,574 million in 2015.