It is after a long gap of 10 years that Chief Executive Officer of Sitara Chemicals Industries Mian Mohammad Adrees plans to invest in his business. But this time around he is not investing in capacity expansion or in any new product. He is investing in coal power to revive a closed capacity.
“It’s a captive power plant, which will produce 35 megawatts of electricity that we require to bring our full caustic soda production capacity into production,” Mian Adrees told Dawn in an interview. The Rs2bn project which will be financed by a consortium of banks and the LCs (letters of credit) for the supply of equipments — boiler, turbine and generator (BTG) — is expected to be established before the end of the present financial year.
Sitara Chemicals is the largest manufacturer of caustic soda in the country with a production capacity of 600 tonnes a day. For some time now it is using only one-third of the capacity, or equal to the total capacity of the country’s third largest caustic soda producer, Engro, because of gas shortages.
The second largest plant, Ittehad Chemicals, is running less than half of its capacity of 400 tonnes.
“Running the plant on costly electricity is not viable. Besides our main consumer, textile industry, in Punjab is in trouble - also because of energy crunch,” he said.
During the first three quarters of the present financial year, Sitara Chemicals posted revenues of Rs6.66b, up from Rs6.09b last year. The profit after tax stood at Rs746m, slightly down from Rs756m a year ago. The EPS (earning per share) declined to Rs34.8 from Rs35.3 as reported in the unaudited accounts of the company for the period July-March.
The last time Mian Adress had planned investment was in 2004 when he wanted to set up a PVC manufacturing project with a total capacity of 6,000 tonnes and at a cost of Rs2-2.5bn. The plan had to be shelved after Pepco demanded a staggering amount of Rs2.2bn from him for the construction of a grid station to supply electricity for his new plant. Now the cost of putting up the same PVC project has more than doubled.
“Until that project was shelved, we had been investing continuously,” he said.
His decision to invest in coal power ‘amounts to his vote of confidence’ in the economic policies of the government of Prime Minister Nawaz Sharif.
“Security and energy shortages are the two problems that are crippling life and economy in this country. It is because of this reason that foreign investors are not returning to Pakistan. If we succeed in addressing these issues, the economy will start to boom,” he contended.
While he was critical of the previous government economic management, he was happy to note that the Nawaz Sharif government is seriously trying to tackle the issues confronting the economy. “We cannot predict success of this government. Nevertheless, it is trying. And the key to success is in making an effort rather than sitting still and waiting for miracles to happen,” he argued.
His family started business after migration from Amritsar in Indian Punjab by opening a cloth shop in Faisalabad at the time of Independence and within a span of 10 years ventured into textile manufacturing by setting up once one of the three largest textile mills of the country – Sitara Textiles. In the 1980s they started to export textiles before diversifying into spinning and chemicals business in the later years. In 1994, the group ventured into energy sector by putting up a gas-fired plant, Sitara Energy, with generation capacity of 80 megawatts of electricity. By the time the project became operational, Punjab was hit by gas shortages. “Since the plant is run on oil and has never achieved its optimal capacity,” he said.
Energy crunch, especially gas shortages, has created an uneven field for industry - be it chemical or textile or any other - in Punjab vis-a-vis Karachi, according to him. “The energy crisis, adverse security environment, exchange rate appreciation and slowdown in textile industry demand (for caustic soda) because of reduction in textile exports owing to currency appreciation is proving challenging for his company to maintain its growth momentum. Engro is running its full caustic soda production capacity because it has access to gas,” he said.
“Gas shortages and dependence on high cost electricity is affecting our margins as well as forced us to discontinue exports to India and Sri Lanka. It is not viable to run the plant on electricity at the present rates and still earn profits, especially when our major consumer — textile industry — is facing a slowdown,” he said. Once the coal plant is established and starts fueling production, he hopes to not only resume his exports to India and Sri Lanka but also create 1000 new jobs at his factory.
(This is the fourth in a series of articles on Faisalabad’s industry and economy.)