LNG terminal — newest venture and impressive addition to Engro Group

Published on 23rd Feb, Edition 8, 2015

 

Apart from Engro Corporation’s stellar growth that showcases a strong performance in key businesses, the Engro Group has added yet another feather to its cap — the Engro LNG Terminal at Port Qasim has set an example for other big business houses within the country to come forward with active plans to invest in energy sector aiming at overcoming the most crucial issue of energy shortages in Pakistan.

Aliuddin Ansari, the Chief Executive of Engro Group told Pakistan & Gulf Economist (PAGE) that Engro Corporation’s newest venture -– the fast-track LNG terminal is on schedule to achieve commissioning by its due date in 2015.

According to informed sources, Pakistan is about to sign an extensive deal with Qatar for the import of Liquefied Natural Gas (LNG) to overcome gas shortages especially in the province of Punjab as well as to overcome power crisis by ensuring sustainable supply of gas for uninterrupted power supply to the end users. A $22-23 billion deal, spanning over next 15 years, is likely to be signed prior to the commissioning of country’s first LNG Terminal at Port Qasim. Under the agreement, Pakistan will import 3 million tons of LNG with an estimated cost of $1.5 billion per annum.

Since the natural gas produced in Pakistan is extremely under pressure as majority of the consumers prefer to use natural gas in automobiles, public transport, power generation while it is the core raw material for some industries like fertilizer and textile industry because it is cheaper source of energy, however this trend has disrupted the energy basket in Pakistan. Although the oil prices have come down sharply even lower than petrol or diesel yet an overwhelming majority of motorists and auto rickshaws running of CNG. In this backdrop there are strong expectations for more and more LNG terminals will be coming in at Port Qasim and Gwadar Port for the capacity enhancement of the newly built Engro Terminal.

It may be recalled that Pakistan had decided to import natural gas two decades ago first from Turkmenistan and later on from Iran. However, because of political pressures from the United States these two pipeline projects could not be materialized.

When the idea of Iran-Pakistan gas pipeline project was conceived the estimated cost of the project was around $7 billion, which has been doubled by now. It will not be out of place to mention that there were no US sanctions on Iran when the idea of Pakistan-Iran Pipeline project was conceived. It was nothing but the inefficiency or lack of vision of the then governments about the future energy needs of the country.

At the moment, Pakistan is confronted a power shortfall approximately around of 5000 MW and it is on top priority of the present government to deal with this issue by using all available options. The addition of LNG in the energy basket of Pakistan would help generate some 3,600 megawatt of electricity, which is amounts one fourth of the present power generation.

Engro Corporation’s initiative for developing country’s first LNG Terminal would be an impressive addition to rest of the units working under the flagship of Engro Corporation.

 

Overall performance of Engro group

With improved profitability, the Group also managed to de-leverage its balance sheet by implementing its cash sweep to lenders well ahead of the agreed timeline in the terms of restructuring. Engro Corporation is well positioned to play its role in creating inclusive growth for the country while working on high impact areas of the economy such as the energy sector through its involvement with the Thar coal and the LNG import terminal projects.

Performance of existing companies

On a consolidated basis the stellar performance of fertilizer and commodity trading businesses were kept in check by a challenging business environment in its rice, polymer and foods businesses.

Overall, Engro Corporation had another great year running with record revenue of Rs175,958 million against Rs155,360 million in 2013 on a consolidated basis, achieving a 13% YoY top line growth. Despite the challenges posed in some of its key businesses, the Company posted a consolidated profit-after-tax (attributable to owners) of Rs7,007 million as opposed to Rs7,818 million during 2013.

Profitability was driven by Engro Fertilizers which had an astounding year on the back of two-plant operations owing to continued gas supply throughout the year. However, the profitability was marred due to losses in rice business owing to lower international rice prices coupled with unprecedented PKR:USD appreciation earlier in 2014.

The Company also announced a final cash dividend of Rs4/share for the year ended December 31, 2014.Summary of company-wise financials:

RS. MILLION	2014		2013
Company	Revenue	Profit/(Loss) After Tax	Revenue	Profit After Tax
Engro Corp Stand-alone	2,111	2,481	3,156	2,749
Engro Fertilizers	61,425	8,208	50,129	5,497
Engro EXIMP	35,119	(2,961)	32,853	59
Engro Polymers	23,819	(1,109)	24,781	707
Engro Foods	43,422	868	37,929	870
Engro Power Gen Qadirpur	12,041	2,021	8,665	1,458
Engro Corp Consolidated*	175,958	7,007	155,360	7,818
* Excluding Non-controlling interest

EngroEximp was able to achieve healthy trading margins, despite the volatility in the international commodity prices due to correctly timing the purchases when international market prices were low.

Engro Foods reported growth of 14% in its consolidated revenues which was a direct result of effective investment on brands and efficient product mix management throughout 2014. Gross margin declined from 22% to 19% on account of higher milk prices which were not passed on to consumers in the competitive market environment. Engro Foods has recorded an impairment charge of Rs596 million on sale of its Canadian operations. During the year, the Company achieved highest-ever UHT market share of 56% in December 2014 as compared to 48% in December 2013. The energy and the chemical storage business – EngroPowergen and EngroVopak – continued to perform in line with their stable business models.

Petrochemicals business -– Engro Polymer & Chemicals — in line with the bearish global commodity prices, also suffered losses due to declining Ethylene-PVCprice delta and was further adversely affected by the imposition of 5% regulatory duty on its imports of Ethylene and EDC during June 2014 which increased its raw materials costs.