ImmediateConstraints&LongTermGrowthTriggersforPakistan

Asad Umar
engro corp
TTerminal
i l
Foods 36
227

Power200

Petrochemicals Fertilizers1,140
265
NumbersinUSDMillion

Engroinvestedover~
i d USD1.9billion
USD1 9billio dollarsduring20072010
d ll d i
engro corp(cont)
2004
4 2011 CAGR%
0411

Revenue 13 115 36%

2 8 25%
PAT

TotalAssets 14 183 45%

NumbersinRs.Billion

3
 I
ImmediateThreatstoPakistan
di t Th t t P ki t
DifficultAccesstoCapital,EnergyCrisis&InstitutionalDecay
DifficultAccesstoCapital CrowdingOutEffect

Fiscal Deficit as a % of GDP Private sector credit off-take as % of GDP

7.6

6.6
6.3
6.0 5.5
5.3

4.3 4.4 5.0

4.1
37
3.7
4.0
FY06 FY07 FY08 FY09 FY10 FY11
3.0

Government (including PSE) Borrowing as a % of 2.0

GDP 1.0
07
0.7
20.2 20.1
1.0
19.4
(0.1)
16.7 -
2006 2007 2008 2009 2010 2011
13.0 12.9 (1.0)

FY06 FY07 FY08 FY09 FY10 FY11

Heavyborrowingbythegovernmenthasresultedinclassiccrowdingouteffecton
borrowing reducingprivateinvestments&drivingdownprivatedemandforcredit
borrowing,reducingprivateinvestments&drivingdownprivatedemandforcredit.

Source : State Bank of Pakistan 1) Consumer Price Index

 EnergyCrisis

Growthhitbysevereenergycrisis
DeclineinElectricityGeneration
FY2007: 94,624 GWh
FY2009: 89,765
89 765 GWh
FY2010: 93,304 GWh
FY2011: 94,653 GWh

20 Large Scale Manufacturing Growth % Electricity Surplus/(Shortages) MW

1,000
,
15
500
10 0
(500)
5 (1,000)

0 (1,500)
(2,000)
-5 (2,500)
(3,000)
-10
05 06 07 08 09 10 11 05 06 07 08 09 10 11

Gasshortages,4001100MMSCfdin2011,furtherimpactstheLSMgrowthnegatively

Source:StateBankofPakistan&BMA 6
InstitutionalDecay

GoP is in wholesale violation on legally

g y binding
g commitments to investors
Engros urea expansion project capacity utilization during 2011 was 33% due to non
availability of gas
Engros IPP outstanding receivable at end of March was ~Rs. 4 Billion i.e. more than
five months of monthly revenue

Poor governance leading to adhoc non transparent decision making

Heavy losses in Public Sector Enterprises (PSEs)

Fragmented economic leadership

7
 LongTermTriggersforPakistan
StrongConsumerBase WealthofNaturalResources Geo StrategicLocation
StrongConsumerBase,WealthofNaturalResources,GeoStrategicLocation
StrongConsumerBase
Population: 177min Moreruralpeoplearemigratingtourbancentersfor
Urban: 37% higherpayingjobs Upwardsocialmobilitycreatingand
Top5cities(%ofUrban):43%
Householdsize: 6.8persons
p expandingthemiddleclass

5th largestindairyconsumption

6th largestinpalmoilconsumption

9th largestintheworldinnumberofcellularphones
StrongConsumerBase
Population: 177min Moreruralpeoplearemigratingtourbancentersfor
Urban: 37% higherpayingjobs.
Top5cities(%ofUrban):43%
Householdsize: 6.8persons
p
U
Upwardsocialmobilitycreatingandexpandingthemiddle
d i l bilit ti g d di gth iddl
class

Giventhelowmedianage,Pakistansmiddleclassis
unusuallyyoungascomparedtodevelopedeconomies,
meaningthatyoungerpopulationwillhavethemost
disposableincomes

Thedependencyratioisonadecreasingtrendmainly
becauseofreductionintheproportionofpopulationat
y
youngagesbetween014years&Increaseintheworking
g g y g
population
21.1 24.8 25.6 28 29 33.2 36.6 38.2 39.6 42.5 43.5

Pakistan India Mexico World Brazil China US Russia UK Italy Japan

Median
StrongConsumerBase TasteofSuccess
EngroFoodsRevenues

1.5 15 30

2006 2009 2011

NumbersinRs.Billion
 WealthofNaturalResources TharCoalPotential
Thar Desert contains the worlds 7th largest coal reserves:

175BillionTon=50BillionTOE=2000TCF
TotalTharCoalReserve MorethanSaudiArabia 68timeshigherthan
&IranianOilReserves Pakistanstotalgasreserves

1% = 25%
TharCoalReserve
PakistansPower
GenerationCapacityin
2010
PAKISTAN

DevelopmentofBlockIIalonewould
bringininvestmentofUSD12Billion

EntireTharCoalReservescanbeused
togenerate100,000MW ofelectricity Thar
forover200years

Location of Thar Coal Field

Source::GSPdata/report EnergyequivalentisbasedonShenhuareport/RWE
 WealthofNaturalResources(cont)

HydroPowerPotential
Realizablepotential17,000
MWpowergeneration(12,000
GasReserves Potential
MWreservoirbased&5,000
naturalgasreserves 93
naturalgasreserves
MWrunofriverbased)1
Trillioncubicfeet

1. HydroPotentialinPakistan,2009,issuedbyWAPDAandEngroPowergen estimate
2. ntegrated EnergyPlan20092022,ReportoftheEnergyExpertGroup,MinistryofFinance
WealthofNaturalResources(cont)

WindEnergy Pakistans
WindEnergypotentialis
gy p
estimatedat50,000MW1

SolarEnergy 2.4millionmegawatt
potentialforsolarenergyalonein
Pakistan1

1. AEDB AlternativeEnergyDevelopmentBoard
GeoStrategicLocation

GeostrategiclocationofPakistancanprovideIndiaaccesstolargecentral
asian andwestasian countries

IntegrationofSouth/Central/WestAsiaenergygridnotpossiblewithout
g / / gy g p
Pakistan
Size of Economy relative to
other regional countries Imports

Size of Imports relative to GDP

other regional countries
Exports
 Uzbekistan Kyrgyzstan
Potential Energy Trade Flows
Tajikistan

3
3

3
Iraan

17

18
1
21 Bhutan

45 7 Bangladesh
29 34
India 1 Myanmar

Sri
18 Lanka
All units in Mtoe
Source: World Bank documents