Security Analyst Briefing

June 24, 2011

Expansion Plant Operations

COMMERCIAL OPERATION DATE OF WORLDS LARGEST SINGLE TRAIN UREA PLANT HAS BEEN DECLARED TODAY

Production History
Plant has successfully demonstrated over 40 days of cumulative production during periods of gas availability. On-spec production was achieved within hours of first ever start-up on 29th Dec 2010. So far, over 118 thousand tons of Urea has been produced from the new plant. First plant in Pakistan to employ highly advanced technology for Carbon dioxide recovery from flue gas. Results in urea production increase of upto 350 tons per day. Hydrogen recovery unit of Ammonia plant in the process of getting commissioned. Will add upto 200 tons of urea production. At full capacity, plant can produce over 3800 tons of urea in a single day Adjusted for service and capacity factors, annual production expected from the plant is around 1.3 million tons

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Energy Consumption
Pakistans most energy efficient and State of the Art Ammonia / Urea Complex incorporating several unique features. First Fertilizer plant of Pakistan to utilize waste gas from Ammonia plant for power generation using State of the Art control system in Gas Turbine driven power plant. Plant is experiencing efficiency debit due to operation at lower load, however is still better than the design efficiency of most efficient competitor as well as Engros existing plant

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Performance Evaluations
Urea plant has been operated upto 87% of design capacity (owing to gas limitation) Adjusted for gas curtailment, the plant has also demonstrated upto 100% of the design capacity and efficiency for few days. Analysis of plant data has been carried out to ascertain expected plant performance at full load conditions. Detail plant evaluations have been carried out by Licensors (Saipem and Haldor Topsoe), and re-confirmed by Engros technical team. Clean bill of health has been issued. Lenders' appointed independent engineer has carried out a thorough scrutiny of plant data and is satisfied with current plant operation and anticipated operation at full load conditions If more gas is available, the plant has potential to few % point above design capacity WITHOUT ANY ADDITIONAL INVESTMENT

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Engro Fertilizers
Commercial & Financial

Project Cost
Overall project cost - Rs. 84 Billion (USD 1.14 Billion) Increase in project cost due to delay and loss of revenue has been covered through subordinate debt of Rs. 1.5 billion, IPO proceeds of Rs. 2 billion (to come in 3rd Q, 2011) and IFC loan of USD 30m Out of USD 30m IFC loan USD 20m has already been drawn down and USD 10m is in pipeline

Gas Situation
On country wide basis there is a shortfall of 20-25% however Sindh and Khyber Pakhtunkhwa invoked article 158 resulting in shortfall of 40% of total demand on SNGPL network Efforts are being made by GOP and industry to resolve the issue Short Term Solutions:
Import of HSFO - Possibility of importing HSFO instead of Urea Mari deep - diversion of identified non-pipeline gas to the fertilizer industry will reduce curtailment

Medium Term Solutions (2-3 years): LNG Efforts are being made to fast track LNG imports to reduce reliance on indigenous gas Gas Finds Fast track implementation of known gas fields - Sui network to bring additional gas of 400-450 MMSCFD in next 2 yrs chiefly from KP-TYA, Sinjhoro and Uch
-

Incentives are being given to encourage further gas exploration Alternate Fuels companies are also evaluating alternatives to reduce reliance on network gas

Gas Situation - Cost of Importing Urea vs. HSFO

Importing Urea is much expensive vs. import of HSFO
Import HSFO Import Urea
Lost Production on Enven A B A/B Import Cost (USD/T) Energy Content * (MMBTU/Ton) Cost of Imported Energy ($ / MMBTU) 710 40 18 545 20 28 Lost Production on other Sui-plants 545 24 23

Weighted-average Cost of Energy ($ / MMBTU)

18

25

Incremental cost to economy of importing urea shortfall Rs. 14 Billion

* Incremental Energy Content

Pricing Power
2,600
Increase of Rs. 190/bag in December, 2010 to offset margin impact of 20% curtailment at expansion plant, along with 45 days winter outage, and 12% of curtailment at base plant. Further increase of Rs. 60/bag in April, 2011 to offset the impact of additional days of plant shutdown between February 2011 and April 2011.

1,050

Current Urea price Rs. 1,050/bag (Exl. GST) vs. Imported Urea price ~Rs. 2,600/bag (Exl. GST) i.e. based on Intl price of CFRKHI: USD 545/Ton (TCP tender opened in June, 2011) The company has the option and plans to raise prices further to offset the impact of gas outages Current price accounts for 90 days shutdown, 20% curtailment on expansion plant and 12% curtailment at base plant further increase in July will incorporate incremental shutdown days (all numbers are on annualized basis)

Local Urea Price (Exl. GST) - Rs./Bag Intl. Urea Price (Exl. GST) - Rs./Bag

Engro Fertilizers Cash Flows and Profitability

2011:
At current prices, base plant EBITDA alone is sufficient to serve interest cost (~Rs. 9.5 Billion) during 2011 Principal repayment of Rs. 6 billion is due in 2011 50% of which has already been serviced and remaining can easily be serviced through cash generation during 2nd half In addition to above there are bridge loans of Rs. 2.6 billion to be paid off during 2011 will be paid off through IPO proceeds of Rs. 2 Billion and subordinate loan from Engro Corp. First half 2011 profitability appears to be on track

2012 and beyond:

Rs. 18 Billion of Debt servicing is due in 2012 based on current situation this appears to be serviceable Even without any margin increase deleveraging will result in strong profit growth Fuel gas price increase or removal of subsidy on feed stock (as being discussed currently by GOP) will have a significantly positive impact on profitability Debt to Equity beginning of 2012 - 66:34 (including revaluation of the base plant) Debt to EBITDA for 2012 - 3 to 3.5

Legal Status
Company is of the view that it is on a strong legal footing because:
100 MMSCFD gas was allocated through international competitive bidding process conducted by GoP, and upon payment of license fee Water-tight GSA with SNGPL guarantees uninterrupted supply, with right to first 100 MMSCFD gas production of the Qadirpur field Both Qadirpur gas field and expansion project are located in Sindh

Company moved Sindh High Court to enforce right to uninterrupted 100 MMSCFD gas
Company has obtained specific orders from Sindh high court, directing SNGPL to supply 80-100 MMSCFD to expansion plant no gas outage since the specific court orders except forced majeure due to issues at Zamzama/Sui gas field

Engro Fertilizers IPO

After declaration of commercial operations, we are now planning the IPO of Engro Fertilizers
Major risk of gas supply can be mitigated to a great extent, as demonstrated, through legal/commercial actions Issue worth Rs. 2 billion

Having confidence in future performance of Engro - IFC has agreed, in principle, to convert new loan of USD 30m to equity. This is subject to final agreement and regulatory approvals

enabling growth. enabling excellence.

thank you.