Khalid S. Subhani is the President of Engro Corporation Limited since 2015. He is a Director on the Boards of Engro Corporation Limited, Engro Fertilizers Limited, Engro Eximp (Private) Limited, Engro Polymer & Chemicals Limited, The Hub Power Company Limited and Laraib Energy Limited. He is Chairman of the Board of Engro Polymer Trading (Private) Limited. He has also served as Chairman of the Board of Avanceon in the past.

Mr. Subhani began his career in the Manufacturing Division at Exxon Chemical Pakistan Limited in 1983 and has held a variety of leadership roles within the Company, including long term assignment with Esso Chemical Canada. He has served as Manager for New Projects, General Manager for Operations, Vice President for Manufacturing, Senior Vice President for Manufacturing and New Ventures and as President & Chief Executive Officer for Engro Fertilizers Limited.

BR Research sat with Mr. Subhani to dwell upon Engro Corporation's strategies and future plans. Below is an edited excerpt from the conversation.

<B>BR Research: Where do things stand with the all important Thar coal project?</B>

<B>Khalid Siraj Subhani:</B> As you know the financial close happened and since then, the contractor has started mobilizing. We already are in the construction phase on both fronts - power and mining. A lot of equipment has arrived and more is arriving every day. Based on the timelines and schedules, we are on time and are likely to complete it before the original schedule.

Both the mining and power projects will happen simultaneously - that is how the projects have been designed. There will not be any cost overruns either fortunately - in fact we can save on some major costs. We are looking at 660 MW of power in Phase-I, two each of 330 MW.

<B>BRR: How has the role of Sindh government been towards facilitating Thar coal project?</B>

<B>KSS:</B> I must acknowledge and thank both the Sindh government and federal government for facilitating the whole process. We have received exceptional support on this project from both governments, which have been instrumental in helping us move ahead. All of us are on same frequency and the project has been supported the way it should have been. We are very happy with the cooperation.

<B>BRR: How are things going on the LNG front? Has the project been a success?</B>

<B>KSS:</B> Our terminal was commissioned last year in March and since then, has been running on near full capacity. It has done wonders to the overall gas demand supply situation in the country, and a lot of people are unaware of that. I must appreciate the ministry to have made it happen - it is a real breakthrough and the economic benefits Pakistan is extracting form this LNG are huge.

Gas demand is ever growing and has to be fulfilled in one form or another. Since, we have not found any sizeable local discovery; obviously the reliance on LNG will keep increasing. And with that in mind, I believe, the government went for the second terminal. We are also studying the commercial terminal right now and that is in initial stages.

<B>BRR: After the overwhelming success of your first LNG terminal, what stopped you from bidding for the second terminal?</B>

<B>KSS:</B> When it comes to putting up a terminal and operating successfully, nobody has the kind of experience that we have. We were best suited to go for the second one also. After doing the first terminal in record time, unfortunately, instead of being praised of doing something that nobody else was ready to do, we got such bad publicity, which was very shocking to us.

We tried our level best to keep providing the realistic situation and information to people, but unfortunately it was a bitter experience and our board decided not to go for the second one.

<B>BRR: Engro is predominantly becoming an energy focused centric entity. Is it a well calculated move with a long term perspective in mind?</B>

<B>KSS:</B> Surely, we are now increasingly becoming an energy focused firm. We have defined three pillars, where Engro will be standing in the years to come. One is energy, the second one is food and agri, and the third is staples. We are working more or less on all the three areas. Yes, the focus right now is greater on energy, because that is the requirement of the country at this hour.

We also feel that for other businesses to expand and pick up speed, energy is vital. If there is no power or gas, nothing will happen. It is not about power generation only; it is the whole infrastructure that will have to be pretty good for other businesses to grow. It is an opportunity that is available today and you will not have the kind of opportunities available forever.

We also have a lot of captive strength in our company to take up such projects. We have very extensive engineering capacity and capability. It is a combination of all of these factors. We were already a sizeable player in the energy sphere - even fertilizer is a form of energy. That said we are trying to do things in other pillars as well.

<B>BRR: Are you planning to venture into the power distribution business?</B>

<B>KSS:</B> I am not ruling it out and we might look at it.

<B>BRR: Can we say that in the near to medium term, almost all expansion would be seen in energy at Engro?</B>

<B>KSS:</B> We are already in expansionary mode in the energy sector.

As we progress, you will get to know more about our other expansionary plans. For example, we are working on staples. Pakistan is way behind regional players in staples business. We do not have a single big established brand in rice or flour. We are at an infancy stage, but the potential is humungous and it offers a lot of room to play with.

We started doing pilots last year and we are testing out certain hypothesis to try and reach our comfort levels in those areas. As thing mature and we invest more, you will see increased presence of Engro in other avenues as well. We have learnt from our past experiences and the signs of pilot projects so far are encouraging.

On the dairy side, there is an organic growth from which everyone stands to benefit. If you look at the processed milk market, we are at 10 percent of conversion. When this percentage was lower, obviously the growth was higher. Now, that the pie has grown, the growth has naturally slowed down, but there is growth nonetheless.

<B>BRR: What is your word on the flagship fertilizer business? We have seen stagnant growth in fertilizer off-take for quite a long time despite the farmers' package and all. When, if at all, do you expect things to start picking up?</B>

<B>KSS:</B> This year started with a lot of uncertainty in the market regarding pricing and subsidies. The commodity prices crashed as well, leaving farmers with not enough money to buy fertilizers in huge quantities. At the same time, production went higher, as gas availability was very much there. This is where we saw a significant drop during first quarter of this year. Everyone was sitting with huge inventory piles, and that was not a very god scenario for fertilizer players.

But sales have picked up ever since, once there was more clarity on pricing. That said, margins have been under pressure.

<B>BRR: Do you think the government has the right to intervene in terms of fertilizer price setting?</B>

<B>KSS:</B> In a free market environment, ideally the governments should not get involved in price setting. But at the same time, we are cognizant of the fact, we also have to see the capacity of the farmers to buy and we keep adjusting ourselves accordingly. The fertilizer industry, as a whole, has been very responsive. Where we lost out the most was the uncertainty. Once there is clarity, even if it is as a result of government intervention, volumes eventually start picking.

<B>BRR: Between fertilizer and power, which business remains more lucrative and closer to your heart?</B>

<B>KSS:</B> These are two vastly different businesses. Power, as you know, is a fixed return business in Pakistan. The revenues are very stable as most variables are known and agreed upon. The commodity business on the other hand, is a different ball game altogether, and you can make and lose money, depending on a lot of circumstances.

One has to see on a long-term basis, and if you have strength to manage businesses, you will always see the upside. Fertilizer continues to be the largest chunk to our top line and bottom line, and I expect the situation to continue till at least 2019.

Fertilizer to us is very near and dear for various reasons. Engro Corporation is what it is today, because of fertilizer. And the manpower we have with our fertilizer business is an invaluable resource and we pride ourselves on it. One reason why we have sailed smoothly into other avenues as well is the strength of our human resource, which was very much derived from the fertilizer business, and it saved us lot of time and money.

<B>BRR: Is there any chance of Engro expanding more into fertilizer business?</B>

<B>KSS:</B> Yes, is the short answer. It won't obviously happen in Pakistan as the country has ample production capacities. But Engro Fertilizer is looking for opportunities abroad and is looking at few African countries for the purpose.

<B>BRR: Since your company is now part of CPEC, what is your overall view on it? And what is your view on the overall macroeconomic picture and the government policies in general?</B>

<B>KSS:</B> I think, CPEC is a divine intervention. The kind of money that is coming in Pakistan is unprecedented. The trick is how effectively and efficiently we use this money. The good part is that a lot of it will be channelled through the private sector. The bulk of it is going into power sector anyways. One can assume it will be utilized in an efficient and transparent manner.

It is a blessing because one of the issues our power industry has confronted with is that it is largely based on imported fuel. We are very unfortunate that the oil prices have come down to as low as they are. But how long will they remain down is anyone's guess. Coal seems to be a good fuel to correct the balance. Had CPEC not been there, we would not have got financial close for even a single coal based project. It will definitely be a game-changer, if we do things in the right manner.

Going back to where the economy is, I believe, by and large there are many positive indicators. The macro situation is much improved and so are the reserves. At the same time, there are concerns over exports and cost of doing business. Our competitiveness is going down and the government really needs to adopt some clear policy measures to resurrect our dwindling exports.