BR Research recently had the opportunity to visit Treet Corporation Limited’s new battery project manufacturing site located in the Faisalabad Industrial Estate on the M-3 Motorway Industrial City. Mr. Ali Aslam, Chief Operating Officer (COO) Treet Battery Project helps us understand the conventional battery market in Pakistan and how Treet plans to bring about a disruption with the production of maintenance free as well as deep cycle variants. We also discuss the upcoming trends in the industry and the details of the new plant.
Below are edited excerpts of the interview.
BR Research: Let’s start off with the estimated project cost and Daewoo’s role in the venture?
Ali Aslam: The total project cost is Rs6 billion and the project were initiated in 2015. And Daewoo will be receiving royalty for the use of their brand as we have chosen Daewoo Batteries. Daewoo is one of the world’s leading battery manufacturers and our association with the company will bring about increased synergies as well as a solid product.
BRR: Tell us how you came to decide upon the location of the plant? Also how much land area has been acquired?
AA: This is something that took almost six to eight months to finalise. Being a group based out of Lahore, we realized the land prices have become very high in Lahore and a big piece of land is not available anymore in one chunk, especially in industrial areas.
That meant either compromising on the factory or looking someplace else. Finally, we ended up with the Faisalabad Industrial Estate Development and Management Corporation (FIEDMC), and its CEO Mr. Amir Saleemi has been very helpful and cooperative in helping us find the location for the battery plant in FIEDMC.
Positive factors about FIEDMC include the connection through M-3, which makes it a good location for an industrial estate. They are also very strict about when you develop the project. Once when you get the piece of land you have a certain time frame in which you have to start the project. If you don’t start the project during that timeframe they can take the land away from you. So, only serious industrialists come in.
The land is also not allowed to be sold, which means investors are not here and there is no middleman. This results in almost no price escalation as such. There is also the option to avail interest free installments over four years, which makes the load on the industrialists much less when it comes to investment in the land.
The total land area consists of 40 acres, and the battery plant is being built upon 24 acres. So we have another 16 acres, which is available for future expansions if need be. The total covered area of the factory site is 35000 sq. metres.
BRR: Which contractors and firms have you partnered with for plant development as well as machinery import?
AA: Our main contractor is Sambu, which is a Korean company and they have been operating in Pakistan for over 30 years. They do mainly infrastructure projects and `are engaged with the federal and provincial governments in Pakistan.
Locally, we are working with companies including DESCON, Packages Ltd., Hasin Habib, which are all recognised names when it comes to major manufacturing suppliers in Pakistan.
Internationally, we are working with major companies both for utilities as well as for equipment for battery. This equipment is coming from many regions including Korea, Taiwan, Canada, Italy and France.
BRR: What is the current production capacity going to be? Are there any plans for future expansion?
AA: The project site will be developed in three stages. The infrastructure that has been put up, which includes the main plant and the utilities, is to take up the total battery capacity to 5 million units. But we are starting with 1.5 million units. We expect the trial production to be in the last quarter of 2017, and within a month of that we expect to get into commercial production.
It is going to be a modular expansion; so provision has already been kept in each area to add similar equipment in the future to take the capacity up from 1.5 million to 5 million batteries.
The other thing you must keep in mind is that our initial cost of coming up with this site might be a little on the higher side. The reason is that we have put in the infrastructure for 5 million batteries already. This was done with a clear mind that the company wants an organised expansion in the future.
Based on our forecasts, we expect to go for expansion in the next two to three years. The cost of those expansions will be much less as provisions will only have to be made for equipment excluding other areas such as infrastructure and utilities.
BRR: What type of product range will the plant be manufacturing? What kind of a disruption can we expect with the manufacturing of these batteries in Pakistan?
AA: We are going to make two types of batteries. For automobiles, the plant will produce what are known as “sealed maintenance-free” batteries (MFBs). This is the first plant in Pakistan to manufacture these types of batteries.
There are companies in Pakistan that claim to make sealed maintenance free batteries, but primarily they are just making a conventional battery and then just sealing it on top, which means you cannot add water. The performance of these batteries has not been satisfactory and suppliers have had to withdraw these from the market. The reason behind the failure is that the equipment and technology is lacking.
Coming to the advantages of these types of batteries, their life is slightly better than conventional batteries. However, the main advantage comes in the form of convenience for customers. That is why in most parts of the world, they have moved to sealed maintenance free batteries from conventional batteries.
Even in the imported car segment abroad, there are only MFBs installed there. Again, there is no need to top up the water or electrolyte solution. It is just plug and play with no prior charging required. This is a convenience factor that people get so used to that they do not buy conventional batteries again.
This is the main technology gap that we find in Pakistan today, and we are happy to fill that. Other companies have taken notice and will eventually be following suit. But we intend to be the pioneers in this technology in Pakistan.
The other battery we are going to make is the deep cycled battery. These are specifically designed for UPS and solar panels. All of us are victims of load-shedding and use conventional batteries to attach to our UPS. But the durability is questionable especially in summer months. The reason is that we are using automobile batteries as back-up power for UPS batteries, which is not the right application. It is a compromise that consumers have had to make because there are no other options available.
However, globally and technologically the right battery that you need is the deep cycled battery which gives you at least 50 percent more life if not more. This is because of a thicker plate and is specifically designed to do load management in a more efficient manner. So, this will be our second product, and we have specialised equipment for this again.
In the future, Treet may be coming up with new technologies to produce specialised batteries for unique applications. But we are not going to be very expensive. It will be competitive compared to the existing products in the country, which means that the switching costs will be kept to a minimum to encourage consumer transition.
BRR: There is then an assumption on your behalf for the deep cycle batteries that load-shedding will continue to persist. What if that is not the case?
AA: As long as load-shedding is completely eliminated, there will be a need for backup power. So even if load-shedding comes down to 2-3 hours in a day, the demand for batteries will still be there.
You have to also realise that solar power is developing very rapidly with an ever declining cost structure and an improved back-up service. Another positive development is the initiative by the government of enabling consumers to produce solar-powered electricity and selling it back to the grid.
Consumers can sell power in winters when there is excess generation and consume the same amount of units free of cost in the summers. This brings the cost of putting up a solar system even further down with payback periods shortening.
Due to these reasons our projections for solar based electricity generation are extremely positive. Therefore, even when UPS sales might decline if load-shedding is eliminated, we expect solar energy to continue with its rapid expansion in the future.