Government Clampdown Squeezes Engro Amid Fertilizer Industry Scrutiny

By Newztodays Team

Engro has felt the heat of removing the subsidy on gas feedstock and referring the case to the Competition Commission of Pakistan (CCP) to probe undue increases in urea prices after claiming to produce higher production to meet the food security needs of the country.

Engro is one of those fertilizer manufacturers that had consumed billions of rupees meant for the Gas Infrastructure Development Cess (GIDC), which was supposed to go into the national exchequer.

During the recent crop season, Engro also collaborated with other fertilizer manufacturers in exploiting farmers by creating an artificial shortage and imposing a 100 percent increase in prices. The caretaker government had warned them to lower prices, but they did not heed the warnings.

Consequently, the government withdrew the subsidy on gas prices for fertilizer and raised prices by over 700 percent. Additionally, the caretakers referred the case to the Competition Commission of Pakistan (CCP) to investigate and take action.Ogra Notifies Massive Hike in Gas Prices

Engro Fertilizers, Pakistan’s premier seed-to-harvest solutions provider, achieved a record urea production of 2.3 million tons in 2023 to support the government’s efforts to ensure affordable and abundant supplies for farmers.

The company was able to achieve this feat and continued to play a pivotal role in enabling the food security of Pakistan, amidst the headwinds of tough macroeconomic conditions, imposition of a higher super tax, and gas price hikes.

Engro Fertilizers was additionally affected by steep rupee devaluation as its 950,000-ton Base Plant is supplied gas under Petroleum Policy 2012 pricing, which is dollar-pegged due to its linkage with the crude oil rate.

According to the latest annual results, Engro Fertilizers’ urea production surged by 18.3 percent compared to the year 2022 (1.95 million tons) due to improved operational performance of both EnVen and Base Plants.

Consequently, the company’s urea sales witnessed an uptick by 20.3 percent to reach 2.32 million tons, while its market share also increased to 35 percent.

“The local fertilizer industry has ensured that farmers continue to benefit from lower domestic urea prices. The Maximum Retail Price (MRP) of urea stood at PKR 3,596/bag at year-end, at a discount of 40 percent to international prices.

This delta constitutes a contribution of approximately PKR 330 billion per annum towards farmer income in Pakistan,” said a company statement. The industry is also engaging dealers to support government initiatives to curb urea hoarding for market price manipulation, bolstering crop productivity, and farmer profitability.

In 2023, the robust domestic urea manufacturing industry enabled import substitution to the tune of USD 2.3 billion, including Engro Fertilizers’ share of USD 835 million.

Furthermore, in 2023, the company contributed nearly PKR 34.7 billion towards the national exchequer through government taxes, duties, and levies, compared to PKR 11.6 billion the previous year.

On a consolidated basis, Engro Fertilizers posted a profit after tax of PKR 26.2 billion with earnings per share (EPS) of PKR 19.61 in 2023, mainly due to increased production from long-term reliability projects, cost optimization, efficient working capital management, and higher interest income.

To sustain domestic urea production levels and safeguard the food security of Pakistan, Engro Fertilizers and other major fertilizer manufacturers are investing heavily in Gas Pressure Enhancement Facilities (PEF) projects.

The expected share of Engro Fertilizers’ capital expenditure in this project is over USD 100 million.