Engro Polymer and Chemicals: ‘Power crisis, economic instability hurting us’

CEO Subhani says tax exemption required to pay off company’s debts.

KARACHI:

Being the only company in Pakistan that produces Poly-Vinyl-Chloride – commonly known as PVC – Engro Polymer and Chemicals is hopeful that the current government will succeed in reducing load-shedding, which has been one of the biggest impediments in growth of this industry.

In an interview with The Express Tribune, Engro Polymer and Chemicals Chief Executive Officer (CEO) Khalid Siraj Subhani has said that unabated power crisis and low economic growth over the last five years have badly affected the consumption of PVC in Pakistan.

Engro Polymer and Chemicals is a subsidiary of Engro Corporation – one of the largest conglomerates in the country. The company’s history goes back to 1994 when it was established as a joint venture with two Japanese companies. Later, perturbed with its low margins, the company decided to change its business model by producing PVC raw materials within Pakistan and invested $350 million in it.



With 170,000 tons of installed capacity, the company successfully meets 80% of the total PVC demand of the country, while the rest of the 20% demand is being met by imports. Within the imported materials, 10-12% is of hazardous scrap import of PVC. Pakistan’s per capita PVC consumption is even lower than the regional standards. The per-capita PVC consumption in Pakistan is just 0.6-0.7kg, which is double in India and as high as 16-17 kg in more developed countries.

After passing through three tough years, the company finally reported a net profit of Rs50 million in 2012, followed by gains of Rs717 million in 2013. Subhani said he was hopeful that 2014 will be a better year for the company despite the slow-moving market and the rise in price of some raw materials that can hurt the company’s profits.

In the recent budget, the government has levied 5% duty on the import of some of the raw materials Engro consumes, which according to Subhani, will increase the cost of production by Rs600-700 million. Moreover, the levy of Gas Infrastructure Development Cess (GIDC) is also going to dent the company’s profits by Rs800-900 million per annum.



Subhani said that he has requested the government to continue tax exemption by withdrawing the 5% import duty for another five years until the company retires its debt, which has continued to dampen its profitability in its initial three years of operations.

“We do not want these exemptions to continue forever, we just want them till we can retire our debts,” he said, adding that they invested in the company upon the government’s promise of tax exemptions, which is why we are hopeful that the government will take back these new duties.

Challenges to the industry

The CEO said that the macroeconomic policies of the government are effective but unless the issue of power crisis is resolved, industrial output will remain low and continue to affect the overall economic growth of the country.

“The load-shedding situation is terrible, especially in Punjab,” he said while mentioning the 12 to 15 hours of daily load-shedding in most parts of Punjab – the province where most of the downstream PVC pipe making and other industries are located.

Subhani said that the PVC downstream industry is mostly in the unorganised sector that cannot afford to run their units on alternative energy sources, adding that these factories are solely dependent on the grid electricity and hence their utilisation is less than half of their capacity.

PVC is the oldest and the most versatile of all polymers that is resistant to corrosion, harsh weather and acts as a superb electrical insulator. Cheaper than other plastics, it offers value at affordable cost, and is therefore one of the most widely used plastic materials in the world.

Published in The Express Tribune, July 27^th, 2014.

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