"In order to cope with the increasing IT trend in the world, we need to equip our youth with latest skills” Federal Minister For Science and Technology Rana Tanveer Hussain
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BRIEFING
“Since Pakistan’s independence, the country’s markets have been heavily influenced by the ruling elite” Former State Bank of Pakistan governor Dr Ishrat Husain
Rs100,000
charges per vehicle have been suggested by Indus Motor Company Chief Executive Officer (CEO) Ali Asghar Jamali from those owners booking new automobiles and selling them within the first six months. By initiating such a move, the need for a middleman or agent gets eliminated and because of them an artificial shortage of vehicle arises in the market, Jamali said while talking to journalists at the Pearl Continental Hotel in Bhurban. Nowadays, the country imports over 40,000 used vehicles per year, which makes about 15% of the total sales of 283,000 units (including used imports). Local manufacturers believe that import of used vehicles remains the biggest threat to the country’s industry. Currently, Pakistan has 16 cars per 1,000 people, a number of analysts believe will reach up to 20 in the next couple of years due to growing and young middle-class families in the country. India is ahead of Pakistan with 18 cars per 1,000 people in this regard.
is the figure that Pakistan can earn from Dairy product exports according to Sector experts. Pakistan retains an edge over Brazil, due to its ability to export milk at a much lower price in the international market. Iran, China, Malaysia, The Philippines, Sri Lanka, Bangladesh, Indonesia and India are budding destinations where the country’s produce can make powerful inroads, they opined. Besides being the third largest producer of milk globally, Pakistan’s dairy industry produces more than 46m tonnes of milk annually in both loose as well as Ultra Heat Treated (UHT) form, pasteurised, powdered and condensed milk, butter, yoghurt, cheese, cream and butter oil. This sector accounts for nearly more than 11 pc of the gross domestic product (GDP). The net foreign exchange earnings from the livestock sector were nearly Rs 52b, which accounted for 11.8 percent of the overall export earnings. Only more than 8 pc of milk currently sold is packaged and with an overall rise in inflation, undue taxation on produce from farm to production industry should be rationalised or withdrawn. Domestic and foreign investment in dairy farms and the dairy processing sector in Pakistan amount to more than $870m over the last five years.
$30b
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$65.6m is the amount for which Premier Oil plc has sold of its operations in Pakistan. Premier Oil, an independent UK oil company has gas and oil interests in Britain, Asia and Africa expects a book gain on disposal of around $40m.Al-Haj has paid an initial deposit of $15m to Premier and will be paying another $10m within the next 2 months. According to the company, the proceeds from the transaction will be utilised to meet its net debt liabilities. Premier’s Pakistan business operations consisted of non-operated equity interests in six gas producing fields in Pakistan. In 2016, the company reported a net after-tax profit of $19.8m, including a one-time noncash gain of $5.7m in relation to the Kadanwari field, according to the company. Premier Oil CEO Tony Durrant is reported to have said, “We are pleased to have reached agreement to sell our Pakistan business. While now non-core for Premier, our Pakistan business has consistently outperformed our expectations over the years and this is testament to the hard work and skill of our team in Islamabad.”
BRIEFING
“China’s step towards progress and prosperity will also have a positive impact on the global economy” Ambassador of Pakistan to China Masood Khalid
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Rs546b
have been dispensed under Public Sector Development Programme (PSDP) across the country. According to statistics released by Ministry of Planning and Development, the mentioned amount was released till 31st of the last month of the current financial year. National Highway Authority (NHA) has been provided over 166b rupees while over 24b rupees have been allotted to the Railways Division.
increase has been recorded in cement dispatches domestically during July-March 17. It almost touched 4 million tonnes with capacity utilisation crossing 101 per cent on the strength of a robust domestic demand, though exports declined by 60 per cent compared with exports in March 2016. The cement industry is playing its due role to get the momentum going and in March 2017, the industry dispatched 3.964 million tonnes of cement against 3.583 million tonnes dispatched during the corresponding month of last year. The statistics reveal that the cement dispatches during the first nine months of this fiscal stood at 30.304 million tonnes, that is the highest ever dispatch recorded in the first nine months of a fiscal. The figure could have been much higher had the smuggling and under-invoicing of cement been curbed.
10.9pc
will be invested by the Indus Motor Corporation (IMC) to enhance its production capacity by 200,000 units to capitalize on the growing consumer demand. The OMEs, they said are continuously investing in capacity enhancement amid unprecedented growth, now it’s up to the government to attract more automakers by showing its resolve in making Pakistan’s auto industry the backbone of the economy by pursuing continuity in policies. The industry suffered heavily when government deviated from policy in 2008 when it allowed an undue relaxation in the import of used cars, resulting in the closure of at least four OEM plants and their vendors while losing many job opportunities. Pakistan is a hidden treasure where 50 per cent of its 200 million populations is below the age of 30. Two countries with about the same population are Indonesia and Brazil, where the yearly car production is 1.3 million and 3.2 million respectively. The annual car demand in Pakistan they added is 283000 only (including domestic and imported cars).
Rs4.19b
Rs1m
remittances have been sent by overseas Pakistani’s during the period July-March FY17. During March 2017, the inflow of worker’s remittances amounted to $1.694 billion, which is 19.58 per cent higher than February 2017 and 1 per cent less than March 2016.The country wise details for the month of March 2017 show that inflows from Saudi Arabia, UAE, USA, UK, GCC countries (including Bahrain, Kuwait, Qatar and Oman) and EU countries amounted to $504.6 million, $363.24 million, $213.29 million, $209.14 million, $197.21 million and $38.85 million respectively compared with the inflow of $514.8 million, $396.35 million, $202.73 million, $202.37 million, $212.47 million and $26.61 million respectively in March 2016.
Third Party Service Provider licenses will be issued by the Pakistan Telecom Authority (PTA) according to media sources. The fee will be payable within 15 days of the intimation letter stating that the license has been issued. PTA has invited applications from interested parties for a 10-year license. The Annual License Fee (ALF), equivalent to 0.5% of the Licensee’s annual gross revenue from Licensed Services, will be paid annually by service providers. The settlement, on the other hand, will be undertaken at SBP as per existing mechanism.TPSP will be maintaining logs of routed transactions, security and privacy of information passing through its systems and providing high quality of service, availability of resources, network redundancy, security/secrecy, authenticity and non-repudiations of financial and technical transactions in addition to all such requirements set out in the Regulations for the Implementation of Mobile Banking, 2016 and Regulations for Mobile Banking Interoperability.
$14.058b
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WELCOmE
SETH-IFICATION AHOY!
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eceived wisdom told us that, given enough time, sophistication and exposure to best modern practices, family-run firms would transform into professionally run companies, with qualified CEOs and board members calling the shots. Informed decisions by professionals, rather than the arbitrary whims of the owner.
Not enough of that happened in Pakistan. Other than the banking sector, where the regulator ensured such practices by law, most other big Pakistani commercial outfits remained firmly in the owners’ grip. In fact, two of the very few companies that actually did have a track record of career employees calling the shots, Packages and Engro, seem set to go the Seth route. (see our cover story on page 20) Now I know you would have already made up your mind about which side of this particular debate you are. Rooting for the professionals just instinctively seems right. You can gather that much even from the very words used to describe the two camps: Seths vs Professionals. It is the Seth here that has to work hard to dispel the impression that he or she isn’t unprofessional; the careerists have no such issues. If the latter rose through the ranks to get the top slot, it stands to reason, then it must be because of their professionalism. No one takes into account that perhaps the careerist was an excellent team player or second-in-command, but might be unprofessional as the captain of the ship. It can - and has been known to - happen. Let's listen to both sides of the story. The primary argument against the Seth-model centres around the lack of accountability. Who is going to keep him/her in check? EmployeeCEOs can be told, bluntly, that they are embarking on a march of folly at the expense of the company by members of the board, shareholders
and, yes, the owners themselves. What does one say to the owner? Furthermore, companies that have grown past a particular scale are now faced with problems that can’t be compared with those that founderowners faced in the heady early days of a company. There are plenty of Pakistani businesses that couldn’t grow past a certain level because, though the founders excelled at the scrappy hustle of a new, young business, they couldn’t wrap their heads around large corporate financing and dealing with complex regulatory frameworks that are required of much bigger firms. At least not the way an educated professional, with years of experience dealing with these issues could. The arguments for: that relative lack of accountability in Seth-run firms could be a strength as well. When a company is making a fundamental shift in its core businesses, career-employees can be bullied into playing it safe; owners, not so much. We can see this in the case of Samad Dawood diversifying Engro’s fertilizer-heavy profile into other sectors like energy. And Packages’ Syed Hyder Ali leading the charge into retailing and foreign expansions. Career employees would be too shy to even suggest such fundamental changes. Lastly, when the going gets tough, when the company is forced to sell its good silver, career employees can’t be faulted for leaving. Why would they put their personal lives and financial futures at risk for an endeavour which, even if things do work out, won’t yield them anything? Owners, on the other hand, can’t just give up and leave. There is a measure of comforting certainty in that, specially for investors evaluating a company to invest in.
Babar Nizami
Managing Editor: Babar Nizami l Joint Editor: Yousaf Nizami l Contributing Editor: Farooq Tirmizi l Sub Editor: Fatima Farooq Editor Reporting: Farooq Baloch l Reporters Karachi: Aisha Arshad l Arshad Hussain & Usman Hanif Reporters Lahore: Syeda Masooma & Abbas Naqvi l Reporters Islamabad: Nida Jaffery l Ahmed Ahmedani & Amir Sial Director Marketing: Zahid Ali l Regional Heads of Marketing: Muddasir Alam (Khi) l Zulfiqar Butt (Lhr) l Mudassir Iqbal (Isl) Design & Layout: Rizwan Ahmad l Illustrator: ZEB Photographers: Zubair Mehfooz & Imran Gillani Publishing Editor: Arif Nizami Contact: profit@pakistantoday.com.pk
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FROM THE MANAGING EDITOR
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MINING OUR WAY TO ZERO LOADSHEDDING Pakistan is aiming to generate cheaper electricity by using coal as an energy source at a time when there is a global shift towards cleaner energy sources owing to climate change concerns By: Ahmad Ahmadani
ENERGY
oal, gas, and oil are among the top fossil fuels used globally for generating electricity and meeting energy demands. Coal fired plants use different kinds of machinery that convert heat energy produced from combustion into mechanical energy. Coal, which is readily available in most of the developing and developed world, has been used as a major source of fuel even in ancient human civilizations. Its use was also found in historic steam engines at the dawn of the industrial revolution. However, environmental considerations have challenged the use of coal as a fuel in the 21st century. But solutions exist whereby coal can be used in a way that it causes less environmental harm. Modern technology is there to help. There is a trend in developed countries to switch to renewable energy sources for their power requirements. Despite this, there are over 50 countries that have more than 85% dependence on non-renewable energy resources at present. These include the oil rich arab countries, China, australia, South africa, some US states and European countries. additionally, if we look by sector, 79% of the global industrial energy requirement is fulfilled by coal powered electricity production. Developing economies use coal as an energy source because it’s the cheapest source of fuel for electricity generation. Most developing countries rely on coal because it is locally sourced, therefore brings down the power tariff. India has increased
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its electricity generation from coal threefold since the 1990’s justifying it as the fuel of choice for the now developed countries during their developing stage. Even now, developed countries like Denmark, have thermal power plants as backup for electricity generation, if renewable fails. Dr. abid Qaiyum Suleri, Executive Director, Sustainable Development Policy Institute (SDPI) said adopting coal technology to meet energy shortage at a time when the world is moving away from it is certainly not a good idea. But, there are number of factors leading to this decision. Pakistan was and still remains an energy thirsty country. The current government came to power partially on the promise that it would resolve the energy woes of the country. our major reliance for electricity had been on gas, hydel, and furnace oil. The coal, nuclear and renewables contribute a minor percentage in our energy mix. Both gas (despite import of lNG) and hydel (due to climate change, and contested use of water) are no more predictable sources of
electricity generation in the country. oil prices always remain prone to fluctuation. after observing a historic low since 2008, they are again bound to rise, turning up the per unit cost of electricity which makes it an expensive affair for Pakistan. “Use of coal technology for power generation purposes is decreasing but not dying in the civilized world,” said Fazal Ullah Quershi Ex-chairman NEPRa. He said advances in coal technology have allowed the world to use coal in power generation for meeting energy needs. Coal has been used extensively in power generation where better technology is employed to ensure that there is a balance between ecology and economics in producing sustainable and affordable energy. “Pakistan’s current energy crisis is due to reliance on wrong fuel mix and dependence on imports. and, in the future, unless we invest in stable fuel sources, the demand and supply gap is expected to widen further given our current power capacity. at Pakistan’s current population and urbanization growth rate, we would need six times more energy than what we have installed, by 2030,” said Fazal Ullah Qureshi. Ex-chairman NEPRa said Thar coal source has become Pakistan’s energy security. Coal quality and economics of Thar coal have been compared favourably with other lignite mines around the world. Thar
“ENERGY DEFICIENT NATIONS LIKE PAKISTAN HAVE NO OPTION BUT TO RELY ON INDIGENOUS COAL RESERVES FOR REACHING UPTO 30 – 40% OF THE ENERGY MIX BY 2030 AND, SNG (SYNTHETIC NATURAL GAS) IS EXPECTED TO BE A VIABLE OPTION FOR COAL RICH COUNTRIES LIKE PAKISTAN WHILE ENVIRONMENTAL FRIENDLY TECHNOLOGIES LIKE IGCC HOLD PROMISE FOR THE FUTURE OF COAL” Dr Farid A Malik
lignite can be utilized in mine-mouth power plants and can be transported to India, China, Germany etc. Also, mining at Thar is technically, economically and environmentally viable while Thar coal compares favorably with other lignite mines around the world such as those in India and Germany. Electricity of 5,000 megawatt can be produced for 50 years with 1.57billion tons of coal and Thar coal will play vital role in meeting country’s power requirements, he added. Coal is a primary energy source. It supplies around 30% of the primary energy needs all over the world, generating 40% of electricity. Some of the biggest producers are China, USA, India and Indonesia. Compared with oil and natural gas, it is one of the most abundant sources of energy. Every year 1,000 million ton of lignite (low grade) coal is mined globally. According to the U.S. Energy Information Administration (EIA), coal reserves in the United States
alone can last up to approximately 190 years, while the rest of the world has at least for another 300 years. So even if it is considered non-renewable, it is unlikely that there will be a shortage of coal any time soon. Dr Farid A Malik Ex-chairman Pakistan Science Foundation said that by looking at the electricity generation mix of the countries that are blessed with coal, it is evident that coal is and in near future will remain the largest contributor in meeting their energy need. Countries like Poland, South Africa, China, India, Australia, Czech Republic, Kazakhstan,Germany, USA, UK, Turkey, Ukraine and Japan are generating 96%, 88%, 78%, 78%, 77%, 72%, 69.9%, 52.5%, 52%, 37%, 31.3%, 27.5% and 22.9% of electricity from coal respectively. In comparison, Pakistan only generates 0.04% of electricity through coal. However, coal reserves of Thar only can generate 10,0000 MW of electricity for the
next 30 years without load shedding and at a rate of Rs 4 which is less than the current cost of electricity production. Although environmental considerations have challenged the use of coal as a 21st century fuel, yet future of coal rests on the success of state of the art Integrated Gasification Combined Cycle (IGCC) technology while coal still produces more than 50% power globally. And, with close to 1200 billion tons of global coal deposits it will remain an important energy resource in the future. While, use of around 1000 million tons of Lignite coal annually calls for environmental sensitivities. Coal is considered amongst the dirtiest fuels which harms the environment badly. Pakistan is now moving from a gas dominated energy mix to coal. By some estimates, the local use of coal by 2030 will be around 30 percent, for which about 50m ton of coal will have to be mined annually. Emissions from coal fired power plants are being blamed for the greenhouse effect resulting in global warming. There is a two pronged approach in the use of coal for power generation thereby making the operations environmentally sustainable. For the existing plants, standards have been enforced eg BACT (Best Available Control Technology), MATS (Mercury and Air Toxic Standards), etc, whereas for new plants instead of direct combustion, coal is first gasified and turned into a clean fuel called SNG (Synthetic Natural Gas) which is now competing with LNG (Liquefied Natural Gas) as a clean source of energy, According to Dr Farid A Malik, Pakistan in order to meet its energy needs has to rely on its indigenous coal deposits. He said energy deficient nations like Pakistan have
ENERGY
no option but to rely on indigenous coal reserves for reaching upto 30 – 40% of the energy mix by 2030. And, SNG (synthetic natural gas) is expected to be a viable option for coal rich countries like Pakistan while environmental friendly technologies like IGCC hold promise for the future of coal. Use of coal in the 21st century is highly regulated due to environmental considerations. For optimum utilization of gas pipeline network, production of synthetic natural gas from coal seems to be the most logical option. State of the art technology like IGCC (Integrated gasification combined cycle) is being planned for Thar coal deposit. Mining followed by above ground gasification is the way forward for a coal rich and gas starved nation like Pakistan. Countries in the West exploited their indigenous coal resources to grow their economies exponentially, they set up industries, mechanized their production techniques, introduced rural electrification and so on. The west’s carbon footprint is worse than that of China and India, as historical emissions are a greater contributor to climate change than the current. Using data from the World Resources Institute, the US had the highest emissions between 1850 and 2007 at 28.8%, whereas China only produced 9%. As a result, developed countries are introducing legislation to restrict the use of coal due to its environmental impact. The West is shifting to lower emissions technologies and renewable resources because of growing concerns over carbon emissions that contribute to global warming and other emissions. In retrospect, Pakistan has one of the lowest carbon footprint in the world, and the concerns raised in the West are not as dire as implied.
About the future of coal in the world, and particularly in Pakistan, Dr. Abid Qaiyum Suleri, Executive Director, Sustainable Development Policy Institute (SDPI) said, “ I think coal’s days are numbered. Due to the negative impact of coal on environment, very soon the countries reliant on coal would be accused of eco-dumping (selling at lower cost than production cost due to comprising on environment). The climate change agreement in PARIS during COP21, and its subsequent endorsement in COP22 in Marrakech are some of the developments discouraging the use of coal. However since coming into power, US President Donald Trump has rolled back Obama eras climate policies and also given the go ahead to the Keystone XL pipeline, putting the global climate change agreement into jeopardy. Despite the bad representation especially from the environmentalists, coal has many applications and not just in electricity generation, which is why it remains a vital product all over the world. What is used to generate power is known as a steam coal or thermal coal, while the coking coal or met-
allurgical coal is used mainly in producing steel. If coal mining were to stop, a lot of industries will be affected, including paper manufacturers, pharmaceutical firms, and alumina refineries. This is why it is highly unlikely that coal production will completely stop, unless it totally runs out, which would be a long time coming. Unfortunately, coal has negative impacts, which leave the world torn between two ends of the spectrum. China being an export driven economy requires that their products are priced competitively in the global markets. To achieve this, it is essential for the industrial sector to have access to a reliable and cheap source of electricity. This is where coal comes into the picture. China has large reserves of coal, making it the fuel of choice for power generation and providing it with a cheap, abundant source of energy. In addition, mining is a labor-intensive industry; therefore it is a source of jobs for China’s large labor force as well. During the Industrial Revolution, fossil fuels seemed to be the ideal energy source. Steam locomotives, the quintessen-
“ I THINK COAL’S DAYS ARE NUMBERED. DUE TO THE NEGATIVE IMPACT OF COAL ON ENVIRONMENT, VERY SOON THE COUNTRIES RELIANT ON COAL WOULD BE ACCUSED OF ECO-DUMPING MEANING THEY WOULD BE SELLING AT A LOWER COST THAN PRODUCTION COST WHICH WOULD COMPROMISE THE ENVIRONMENT” Dr. Abid Qaiyum Suleri
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tial machines of the Industrial Revolution, used coal as a fuel source to compensate for a lack of firewood and charcoal. Coal was easy available from seams near the surface, it could also be used in households in its natural form. Because of its role in the industrial revolution, coal became the fuel of choice of developing economies over the world. Over time, the concerns over carbon emissions became the single most influential factor for global warming. Not only was the West a major contributor of carbon emissions, they also had the largest consumption footprint, according to recent research conducted at the National Academy of Science at the US. It became the responsibility of the West to consolidate a global effort to reduce carbon emissions. Additionally, coal demand is now shifting to Asia, where emerging economies with growing populations are seeking affordable and secure energy sources to power their economies. Research on clean coal technology is underway, which would reduce the environmental impact of coal. To address the environmental con-
“USE OF COAL TECHNOLOGY FOR POWER GENERATION PURPOSES IS DECREASING BUT NOT DYING IN THE CIVILIZED WORLD” Fazal Ullah Quershi, Ex-chairman NEPRA
cerns, various solutions have been employed. China, USA and India are the largest users of coal. Stringent regulations in the form of environmental impact assessments (EIA) and mine closure insurances on currently operating mines by the world interest groups are in practice to reduce the environmental harms. Keeping in line with the international standards, SECMC conducted a detailed EIA to assess the damage that might be caused by mining in Thar. The studies were conducted for both the mine and the power plant in Thar Block-II by international con-
sultants SRK UK and Hagler Bailly Pakistan. A NOC for Mining & Power Projects was issued by SEPA after public hearings and expert review meetings.’ Even today, the most efficient solar cells only convert just over 20% of the sun’s rays to electricity. Besides their low conversion efficiency, solar panels require substantial initial investment. With increased advances in solar cell technology, this number is likely to increase, but the storage will always be a constant running expense.
Pakistan's energy mix from historical perspective, current status and future plan. akistan has huge resources of coal that remain untapped with less than 1% contribution in the energy mix. It relies heavily on thermal energy which makes use of imported oil as a fuel source. Over the years, Pakistan has shifted from indigenously sourced fuel to imported fuel. Imported fuel is an expensive, unstable source as the main fuel source for energy production. Pakistan energy mix for 2015 was comprised of predominately thermal and hydro with thermal production comprising 67.3% of the total energy produced. Thermal uses Regasified LNG and Diesel. In the future, when Thar coal is used for power generation, thermal production would increase even more but Thar coal will replace some portion of imported fuel. Using data from 2015, coal is not used for electricity production in Pakistan. However, according to forecasted estimates, by 2020 electricity generation using coal as a fuel would sum up to 15% of total energy produced. And, at mine capacity of 7.6 MTPA (million tons per annum), by Decem-
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ber, 2019 Thar Coal Prices will become comparable to imported Coal. Sindh Engro Coal Mining Company (SECMC) Chief Executive Officer (CEO) Shamsuddin Ahmed Shaikh said SECMC is committed to deliver the true benefit of Thar to the people of Pakistan as early as possible. SECMC plans to add additional capacity of 11.4 MTPA beyond Phase II by Dec 2021, which would bring the electricity tariff down further. Mining at production capacity of 19 MTPA brings the tariff down to 6.5c/kwh. Expanding the mine brings down the coal price and consequently the power tariff is reduced.
Future of coal power generation projects of CPEC he Government of Pakistan has made the Thar Project part of CPEC and introduced a range of supportive government policies for indigenous fuel for power generation. Under CPEC, there are numerous coal powered plants coming up in the near future. Two power plants of 660 MW each are being set up at Port Qasim, another two imported plants of the same capacity are being set up at Sahiwal. Engro Powergen Thar Limited are setting up two power plants at Thar Block II powered by Thar Coal. Feasibility studies for coal extraction at Block I and VI of Thar block II have been completed.
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“CHINA-PAKISTAN ECONOMIC CORRIDOR (CPEC) PROMISES TO BRING THE MUCH NEEDED ECONOMIC GROWTH IN THE REGION AND COAL WILL PLAY A DOMINANT ROLE IN THE ENERGY MIX OF PAKISTAN REACHING UP TO 30% BY 2030” Shamsuddin Ahmed Shaikh, Sindh Engro Coal Mining Company (SECMC) Chief Executive Officer (CEO)
Officials at petroleum and natural resources ministry said with reserves close to 200 billion tons Pakistan has emerged as a major player in the coal industry. They said International collaboration will ensure proper utilization of coal as mandated by 21st century usage challenges. Being a late entrant Pakistan can benefit from the clean coal technologies available today. “ChinaPakistan economic corridor (CPEC) promises to bring the much needed economic growth in the region and coal will play a dominant role in the energy mix of Pakistan reaching up to 30% by 2030,” Shamsuddin said. Major industrial houses of Pakistan and prominent Chinese investors have expressed interest in obtaining coal from SECMC to set up power projects. Thal and Hubco have already received LOI from PPIB to setup 330 MW plants each at Thar Block II. These plants will achieve CoD by Dec 2019. SECMC plans to expand the Block II mining project to 19 mtpa with the next 6 years taking the total generation capacity based on Block II coal to 3300 MW.
Advantages of coal energy oal energy is very affordable due to its stable price unlike any other forms of energy in the market. The
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abundance of coal energy is another advantage. It is also easy to burn. Reliability is entailed and presented in this form of energy. This form of energy produces high energy upon its combustion process. The power generation scale of coal is great, which makes it possible for building a range of sizes of generation plants. Coal is used to build power stations in different parts of the world since it is a fossil fuel as long as there are huge amounts of it.
Disadvantages of coal energy oal energy is producing tremendous amount of carbon emissions that results in climate change and global warming. Coal burning is not considered to be environmental friendly due to the production of harmful by-products like nitrogen, carbon dioxide and sulfur dioxide. Coal burning can cause pollution and damage to the environment causing for example, acid rain. Coal energy is depleting fast because many people consume a large amount of it inefficiently. This form of energy is not a renewable one. It is also ruining the ecosystem and environment and putting many people’s lives in danger especially miners. Underground mining is very hazardous because cave-ins and explosions are common. Unstop
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COVER STORY
By Babar Nizami, Farooq Baloch, and Farooq Tirmizi
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e would like to state at the outset that we do not condone the worst attributes of seth culture in companies. Treating employees like chattel. Ignoring human capital investment. Paying low salaries. Not paying salaries on time. There is a good reason working at a seth company is considered embarrassing: it is what a middle-class professional must do when they have no other choice. Seth companies are probably why a large proportion of Pakistani expatriates left the country in the first place. With that said, the questions of what exactly counts as seth culture, how it differs from a professional corporate culture, and whether it can have positive economic value, have gained salience in recent months as both Packages Ltd and Engro Corporation – long seen as bastions of professionalism in a sea of sethia companies – appear to be taking a U-turn. Literally translated, a seth company simply refers to a family business. But in the phrase’s use in the Pakistani business vernacular of a mix of Urdu and English, it can mean the very worst of what a family business can look like and is most frequently used as a pejorative. But how justified is the pejorative? And why does it matter that Packages and Engro are drifting in that direction. The answer, as always, lies in history.
Packages: the enlightened self-interest of Syed Babar Ali yed Babar Ali comes from a family that is arguably the very definition of Pakistan’s urban elite. His father, Syed Muratib Ali was an industrialist who owned, among other properties, a Ford assembling plant in pre-Partition Pakistan. This is the kind of family that was able to afford sending their children to study in the
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United States long before anyone in Pakistan even dreamed of that possibility. Indeed, young Babar was at the University of Michigan at Ann Arbor, studying engineering, when Partition happened in 1947. In fact both Babar Ali and his son Hyder attended the University of Michigan and both pursued engineering degrees. (The US automobile industry, then much more so than now, was largely based in the state of Michigan.) Babar Ali never finished his degree because he decided to come back to Lahore in December 1947. But Hyder graduated in 1979. Being part of the moneyed elite of Pakistan, and having that American education and connections, meant that Babar and his brother Wajid could think about expanding the family business through joint ventures with Western businesses: Coca Cola, Tetra Pak, Nestle, and Mitsubishi. The brothers managed to become a fixture in the elite of the new country. Their eldest brother Amjad was made Ambassador to the United States from 1953 to 1955, and the family took the opportunity to have Babar’s wedding ceremony conducted at Pakistan’s Embassy in Washington DC. The ceremony was featured in Life magazine and was attended by Richard Nixon, then
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the Vice President of the United States. You would think that a man who comes from a family that reeks of political and economic privilege like that would be the worst kind of employer, or at the very least one of those stereotypical disinterested sons of wealthy fathers. Neither of those stereotypes holds true for Babar Ali. Far from it, the man seems to have gone well out of his way to creating the kind of meritocratic professional culture that few companies outside of Western multinational companies operating in Pakistan offered their employees. (Amjad made himself useful as well: when Pakistan faced a famine in the early 1950s, it was Amjad who secured an emergency supply of wheat from the United States.) While Babar and his family were always on the board and exercised a great deal of oversight, management of Packages lay firmly in the hands of the company’s General Manager, who was always an employee unrelated to the family. “Packages under Babar Ali was one of the most forward-thinking companies of its time,” said one former member of Packages’ management team, who spoke on the condition of anonymity in order to speak candidly about his experiences at the company. In interviews with former employees who worked directly with Babar Ali, Profit was able to piece together a picture that suggests that Packages was the kind of company where the majority shareholders made an active effort to make their employees feel valued members of a team rather than simply cogs in a machine. The decision to do so, of course, was not out of benevolence on the part of Babar Ali, but rather an act of enlightened self-interest: taking care of Packages’ employees helped the company’s bottom line. The former GM of Packages narrates one such story that illustrates this point. “Under instruction from Tetra Pak, Packages had to undergo a mas-
sive capital expenditure program to completely replace its old machinery and replace it with a newer, much more sophisticated technology. The change was analogous to going from flying a Fokker to a Boeing. It would normally have taken 18
BABAR ALI SEEMS TO HAVE GONE WELL OUT OF HIS WAY TO CREATING THE KIND OF MERITOCRATIC PROFESSIONAL CULTURE THAT FEW COMPANIES OUTSIDE OF WESTERN MULTINATIONAL COMPANIES OPERATING IN PAKISTAN OFFERED THEIR EMPLOYEES to 24 months to complete that kind of transition, but Babar Ali wanted it done in nine months. “The amount of money that could be saved by making the process 15 months shorter was about $10 million at the time. The Packages management decided to spend $1 million of that projected savings on training their employees, sending them to some of the best factories in the world and consulting them on which specific equipment to purchase. The project was a success and the complete transition was finished within the nine-month deadline. And it worked because the company invested in
its people, gave them a chance to travel around the world, and then sought their input into one of its most critical capital expenditure decision.” But it is one thing to invest in the human capital of one’s own employees. It is quite another to dedicate resources towards the education of the nation’s most promising youth. It is the latter act for which Babar Ali will most likely go down in history as one of Pakistan’s most consequential individuals: in 1986, he laid the foundation for the Lahore University of Management Sciences (LUMS), unquestionably the finest institution of higher learning in the country. The idea for LUMS came to Babar Ali as early as 1973, during a visit to Harvard Business School, where he was able to see just how far advanced the science of business administration had come in the United States. He resolved to create a business school in Pakistan, and found his opening in the 1980s when American aid started flowing into the country to finance the war against the Soviet invasion of Afghanistan. Babar Ali managed to convince the US Agency for International Development (USAID) to spend $10 million on the creation of LUMS, which started off as a graduate business school in 1986, but quickly expanded to include an undergraduate liberal arts program in 1994, and now includes a law school and an engineering school. It is this last act that makes Babar Ali and Packages unique. This is not just a company that let its employees rise to the top management position and gave them real autonomy. This is not even just a company that invests in ensuring that its employees are well-trained. It is a family business that undertook the effort in ensuring that its employees, and the employees of many other companies – including some of its rivals –
“SOME OF THESE PEOPLE SOLD THEIR HOMES AND MOVED TO RENTED HOUSES WHILE OTHERS SOLD THEIR WIVES’ JEWELRY TO BUY THE COMPANY'S SHARES” Asad Umar, Engro’s CEO from 2004 through 2012
were well-educated. Few people can claim to have had a direct role in the creation of the Pakistani middle class, but Babar Ali is one of them.
Engro: where the Pakistani middle class found its guts and glory f Babar Ali represents the finest example of enlightened benevolence from the top, there is another person who represents the very best of the up-bythe-bootstraps, create-wealth-from-nothing story that would give the Pakistani middle class the courage it needed to truly reach for glory. Shaukat Raza Mirza was a soft-spoken, unassuming sort of chap when you met him in person, and like a good Karachi middle class boy with an engineering degree, had worked in a safe, cushy multinational company job his whole life. But he is also the man who taught that same risk-averse middle class the virtues of entrepreneurial, bet-the-farm-on-your-best-idea risk-taking. Babar Ali showed ordinary Pakistanis that they deserved better treatment from the economic elite. Shaukat Raza Mirza showed them that they did not need to wait around for a benign overlord, that they could take control of their own destiny if they dared take the risk. In 1991, Exxon, the American energy giant, decided to divest itself of all non-energy assets. That long list included its fertilizer manufacturing
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business in Pakistan. It was at that juncture that Mirza and his team decided: “why wait for a buyer to determine who our new boss will be? Why not buy it ourselves and be our own bosses?” The plan was to buy out 75% of the company’s shares from Exxon through a combination of equity raised from the staff as well as debt raised from local and international financial institutions in what eventually became the first management buyout in Pakistani history. The new company would be named Engro and would immediately expand its fertilizer manufacturing capacity by importing an entire plant from the United Kingdom and the United States and reassemble it in Pakistan. Mirza was so convinced of the virtue of his plan that he managed to convince not just his immediate subordinates and management employees but also the labour and factory staff to invest in buying out the company. “Some of these people sold their homes and moved to rented houses while others sold their wives’ jewelry to buy the company's shares,” said Asad Umar, Engro’s CEO from 2004 through 2012 and currently a member of the National Assembly from Islamabad. It was a high-risk bet, “... perhaps, the most ambitious project, in terms of technical complexity, ever undertaken in Pakistan until that point. A relocation based chemical project on a scale that had never before been undertaken anywhere in the world before that and started a global trend,” said Umar. It was, however, needless to say, a spectacularly smashing success. On May 5, 1991 (a date that entrepreneurial Pakistanis should celebrate as the birth of their risk-
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taking spirit), the management buyout was completed. On May 6, the process of relocating that chemical plant began. The project was a smashing success. In the 26 years since the management buyout, Engro’s revenues have grown more than 123 times, from Rs1,277 million in 1990 to Rs157.2 billion in 2016, an average annual growth rate of 20.3% (inflation averaged 8% during this time). Needless to say, the stock price did quite well and those initial investors were materially better off. “With these gains, they married their daughters off, educated their children and bought property later on,” said Umar said. “Before the buyout, there were hardly any cars even in the management section of the Engro colony at Daharki. Now, there are traffic jams in the labour section of the colony.” No good deed goes unpunished, however. Shaukat Raza Mirza was murdered in 2001 for being Shia by the Lashkar-eJhangvi.
WITH PACKAGES, IF THE TIME HAS COME TO SHAKE THINGS UP AND TAKE BIG DECISIONS, A PROFESSIONAL MANAGEMENT IS PROBABLY NOT THE BEST SUITED ARRANGEMENT FOR THE JOB
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OVERALL, NON-PUBLIC FAMILY BUSINESSES PERFORM WORSE THAN PUBLICLY LISTED PROFESSIONALLY RUN COMPANIES, BUT THOSE PROFESSIONALLY RUN COMPANIES ARE OUTPERFORMED BY PUBLICLY LISTED COMPANIES THAT STILL HAVE A FAMILY AS THEIR MAJOR SHAREHOLDER” Arif Iqbal Rana, Head of the Family Business Initiative at LUMS
Part of the consequences of having that many small shareholders is that Engro had a much larger free-float of shares than most other Pakistani companies, making it an easier target for a hostile takeover attempt, which is exactly what happened in 2002, when Hussain Dawood, chairman of the Dawood Hercules Corporation, began buying shares in a bid to gain control over the company. The Engro management sued Dawood, eventually settling out of court in 2003 through an agreement that allowed Engro management to retain a majority on the board of directors for the following ten years. That agreement allowed Engro to continue operating the way it had after the buyout – a place where middle class Pakistanis could get jobs, take risks, build out the business, and rise to the top – despite having a wealthy family as their largest shareholders. Engro became the platform for ambitious young Pakistanis to create new businesses with the power of one of the strongest balance sheets in the country at the time. The result was that the company diversified away from fertilizers, venturing into sectors like foods, energy, industrial control and automation, PVC resin manufacturing and marketing, chemical terminal
and storage, becoming the country’s largest private sector conglomerate. It is the 10th largest listed company based on market capitalization, which stands at Rs198 billion or $2 billion (approx.), and has about 4% weight in the benchmark KSE-100 Share Index. All good things, however, must come to an end. At Engro, and at Packages, the family with the most shares is going through a generational transition, and in both cases the son appears to want a different relationship with the employees than his father.
Generational Transition: The Seth Strikes Back ver the last five years, it has become increasingly clear at both companies that, as the older patriarch of the family that owns the largest number of shares moves into retirement, the new head of the family wants to assert considerably more control than the father. And that has unintended consequences in companies that had decades of a culture of an independent non-family management used to running the affairs of the company. In the case of Packages, the transition is clear cut: in early 2016, Syed Hyder Ali, Babar’s son, after taking control over the company as Managing Director and CEO, eliminated the position of General Manager, effectively destroying the hopes of any employees who dreamed of running the company one day. The highest ranking employee in the group is now Asghar Abbas, head of the packaging division. A senior employee at Packages told Profit that Abbas is essentially a “yes man” who has very little desire or ability to assert any kind of control over the company and effectively just follows and implements orders. This new approach has rubbed many
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employees the wrong way, and some even left despite a long association with the company.. Among the departures includes Ali Aslam, who had previously run Packages’ Sri Lanka subsidiary and was most recently serving as CEO of Bulleh Shah Packaging Pvt Limited a JV between Stora Enso and Packages Limited. Senior employees at Packages say Aslam left over differences with Hyder Ali over the new management approach. In the case of Engro, the shift has been more subtle, but the result on senior management retention appears to have been even more drastic. The transition appears to have begun in 2012, soon after Asad Umar’s departure (he left of his own volition to pursue a political career). In June 2012, Hussain Dawood, using his Dawood Hercules portfolio companies, bought a significant stake and management control over the Hub Power Company, Pakistan’s largest independent power producer. Since then, slowly but surely, Engro’s investments have been redirected away from all other business lines and focused almost exclusively on power generation. This transition has not gone over well with many employees and what started off as a trickle has now become a flood of senior-level departures over the last few years. After all, the whole attraction of working at Engro was that it offered a well-capitalised platform to try new business ventures. If the family that controls the most shares (the Dawoods own 38%) is no longer allowing that and focusing solely on energy, why bother staying?
“IN 2013, WHEN PRIME MINISTER NAWAZ SHARIF FIRST TOOK OFFICE, I PROMISED HIM THAT OUR GROUP WOULD DELIVER AT LEAST 2,400 MW IN INCREASED POWER GENERATION CAPACITY” Hussain Dawood, in an interview with Profit
Prior to 2012, Engro was consistently ranked the most desired employer in Pakistan by college students. Now, it appears to be struggling to hold on to its (very well compensated) CEOs, having had three in the last five years. By contrast, the company took 21 years to cycle through three CEOs after the management buyout. And it is not just the very top. The departures have become more frequent over the last two years especially. Since 2015, Aliuddin Ansari and Khalid Siraj Subhani (CEOs, Engro Corp.), Sarfaraz A. Rehman (CEO, Engro Foods), Sheikh Imran ul Haque (Senior VP Engro Corp. and CEO
ELengy Terminal Pakistan Ltd.), Andalib Alavi (VP-Legal and Company Secretary, Engro Corp.), Naz Khan (CFO, Engro Corp.) and Syed Mohammed Ali (CEO Engro Powergen Qadirpur) have all left the company. None of these executives cited any differences with the management, but people familiar with the developments say some of them would have retired anyway while others had a difference of opinion regarding Engro’s new strategic direction, and thus left early. Engro’s push in the energy sector is not new. The company set up its first energy subsidiary – Engro Powergen Qadirpur, a 224 MW power plant – in 2005. In 2009, Engro set up the Sindh Engro Coal Mining Company, a 3,960 MW project whose first phase comprises two 330 MW subcritical plants. However, in the same decade, it also successfully entered the food business, which went on to become one of its top performing subsidiaries along with its fertilizers business. By end of 2010, the company also set up the world’s largest single-train urea manufacturing plant in Daharki, the $1.1 billion project named Enven – the single largest private sector investment in Pakistan at that time.
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Until 2012, Engro was showing no signs of pulling back from other sectors. However, after some initial success, Engro Foods’ earnings suffered on the back of logistics and distribution issues. For most of 2013 and 2014, its revenues and margins remained under pressure. In fertilizers, the Enven plant continued to operate at a much lower capacity in 2011 and 2012 because of a shortage of natural gas, the major raw material needed to run the plant. With two of its most profitable businesses running into problems, the company was already taking a new direction. For example, in 2012, the company made a big investment to set up Elengy Terminal Pakistan Ltd, a terminal for handling, regasification, storage, treatment and processing of liquified natural gas (LNG) and other liquids, gases and chemical and petroleum products. Later in 2015, its subsidiary Engro Powergen Thar (Pvt) Ltd obtained generation license for its $1.1 billion power plant project. With an increased focus on energy, it needed more money to invest but already exhausted its single party limit so borrowing from banks was not an option. Therefore, in 2016, Engro divested 47.1% stakes in Engro Foods to the Dutch dairy giant FrieslandCampina and raised $447 million. This was in addition to another $185 million it received in proceeds from selling 28% of its shares in its fertilizer business. The company has also sold its investment bank, Elixir Securities, and was on the verge of selling the petrochemical business too, but decided against it. It will deploy all these proceeds to energy sector projects, market analysts say. Engro has already announced its intention to set up another LNG terminal for a 450 MW power plant that would cost $700 million. “They now have the money in hand and they don’t like to sit on it,” an official said adding they will reinvest it. More than just the strategic direction
IF ENGRO IS SHIFTING GEARS TOWARDS ENERGY, IT MAKES SENSE TO EXERT GREATER FAMILY CONTROL, SINCE THE ENERGY BUSINESS REQUIRES FEWER, BUT FAR MORE CONSEQUENTIAL DECISIONS WITH RESPECT TO TWO MAIN FACTORS: CAPITAL ALLOCATION DECISIONS ON WHICH PROJECTS TO PURSUE, AND CONTRACTING DECISIONS ON WHICH GOVERNMENT CONTRACTS ARE THE MOST ATTRACTIVE FROM A RISK-ADJUSTED RETURN PERSPECTIVE of the company, however, the composition of its board of directors has changed dramatically after the 10-year agreement between Dawood and the management shareholders expired. The current board has five nominees appointed by Hussaid Dawood, including his sons Samad and Shahzada, four independent directors, and the Engro CEO being the sole representative of management on the board. Not much of the management buyout remains now that the management is effectively off its own board of directors.
The case for and against seth intervention he reality of the shift in corporate culture, therefore, is not in dispute. However, it is unclear whether the seth asserting control at both Packages and Engro is necessarily a bad thing. Indeed, one might argue that the newer generation of the major shareholding family was stepping in to implement a course correction that the previous generation should have implemented a long time ago. In the case of Packages, the company had been losing market share to newer competitors, like Saima Packages and Roshan Packages, for the last two decades when the company was run by non-fami managers,
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SYED HYDER ALI, BABAR’S SON, AFTER TAKING CONTROL OVER THE COMPANY AS MANAGING DIRECTOR AND CEO, ELIMINATED THE POSITION OF GENERAL MANAGER, EFFECTIVELY DESTROYING THE HOPES OF ANY EMPLOYEES WHO DREAMED OF RUNNING THE COMPANY ONE DAY 26
says the former General Manager at Packages who declined to be identified in order to speak more candidly about his former employer. The majority shareholder in that case acted responsibly in stepping in. Packages has shrunk its core packaging business, and as a proportion of the group’s total revenues and profits, Packages Ltd, the listed entity, is significantly smaller than it was. But the group has divested unprofitable non-core assets like IGI Insurance, while investing in what it hopes will be far more profitable investment opportunities, such as a packaging business in South Africa, as well as commercial real estate in Lahore in the form of Packages Mall. And in the case of Engro, one might argue that the period from 1997 through 2012 was too permissive in allowing employees to create new lines of business, diversifying without a core strategic objective. Engro Foods was probably the best business line that came out of that phase in the company’s history, but after a few years of a “me-too” expansion strategy that essentially copied Nestle and Unilever’s product line, Engro Foods management ran out of ideas because Nestle and Unilever had not come up with them yet, resulting in stalled revenue growth and a decline in profitability. Having a focus on energy at a time of an acute energy shortage may not necessarily be a bad decision. According to the Federal Water and Power Ministry, the country faces a 5,000 MW shortfall in production capacity. “In 2013, when Prime Minister Nawaz Sharif first took office, I promised him that our group would deliver at least 2,400 MW in increased power generation capacity,” said Hussain Dawood, in an interview with Profit.
Family control vs professional control sually when a non-family professional CEO takes control of a company, the share price of the company rises. Likewise, when the first generation of the family dies, the share price of the company tends to fall since the market assumes that there are lower chances of finding someone of equal skills in the next generation of the same family,” said Arif Iqbal Rana, associate professor at the Suleman Dawood School of Business at LUMS and the head of the university’s Family Business Initiative. Those market reactions, however, belie a more complicated picture when it comes to the efficiency of the family business as an organizing force in the economy. “The key way to think about family versus non-family businesses is that the two are simply very different. Overall, non-public family businesses perform worse than publicly listed professionally run companies, but those professionally run companies are outperformed by publicly listed companies that still have a family as their major shareholder,” said Rana. He goes on to elaborate on which situations best lend themselves to family control and which ones are best suited for professional control. “Basically, the key word is ‘discretion’. Whenever the effects of discretion are high, it is very difficult to trust a non-family member. That is why you see very few nonfamily businesses in something like textile spinning. In that business, 60% of the cost of doing business is the cost of cotton. That means that 60% of the fate of the business is determined by the one decision of when and which price to procure cotton. Whenever there are fewer decisions of enormous consequence for a business, you will see more family control. When there is a business that requires many smaller decisions to be taken on a day-to-day basis, that company is bet-
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IT IS THE LATTER ACT FOR WHICH BABAR ALI WILL MOST LIKELY GO DOWN IN HISTORY AS ONE OF PAKISTAN’S MOST CONSEQUENTIAL INDIVIDUALS: IN 1986, HE LAID THE FOUNDATION FOR THE LAHORE UNIVERSITY OF MANAGEMENT SCIENCES (LUMS), UNQUESTIONABLY THE FINEST INSTITUTION OF HIGHER LEARNING IN THE COUNTRY ter off under professional control,” said Rana. By that logic, if Engro is shifting gears towards energy, it makes sense to exert greater family control, since the energy business requires fewer, but far more consequential decisions with respect to two main
AT ENGRO, AND AT PACKAGES, THE FAMILY WITH THE MOST SHARES IS GOING THROUGH A GENERATIONAL TRANSITION, AND IN BOTH CASES THE SON APPEARS TO WANT A DIFFERENT RELATIONSHIP WITH THE EMPLOYEES THAN HIS FATHER factors: capital allocation decisions on which projects to pursue, and contracting decisions on which government contracts are the most attractive from a risk-adjusted return perspective. Similarly, with Packages, if the time has come to shake things up and take big decisions, a professional management is probably not the best suited arrangement for
THE CURRENT BOARD HAS FIVE NOMINEES APPOINTED BY HUSSAIN DAWOOD, INCLUDING HIS SONS SAMAD AND SHAHZADA, FOUR INDEPENDENT DIRECTORS, AND THE ENGRO CEO BEING THE SOLE REPRESENTATIVE OF MANAGEMENT ON THE BOARD
the job. One could argue, therefore, that professional management is not always the best way to go and that the seth has his uses. There is, however, something to be said for creating large companies as organized vehicles for economic advancement based solely on talent, regardless of the accident of one’s birth. This is not to suggest, of course, that Samad Dawood and Syed Hyder Ali are not highly talented men. However, it is an attractive idea to have companies where the people who lead them are decided not by who their parents are, but by the value they have created for the company and for society as a whole. Family control may allow for bigger, riskier decisions, and professional control for the smooth efficient every day running of a business, but must Corporate Pakistan live with this divide? Is it not possible for that professional management that ran a company smoothly to also make the big decisions? The employee-owned Engro, led by Shaukat Raza Mirza, was able to be bold, brash, publicly listed, and efficiently run all at the same time. Is employee ownership the only model that strikes that balance? Not necessarily. Lehman Brothers had substantial employee ownership and it became the largest bankruptcy in history and led to the largest global financial crisis since the 1920s. Ultimately, of course, this matter is decided not by a professor researching the question at LUMS or by the family shareholder. The question of which companies will do best will be decided by the young, talented business, engineering, or liberal arts student. Where she decides to work, where she feels valued, nurtured, and appreciated, is the place that will thrive. Any corporate organizational structure that prioritizes attracting, retaining and utilizing her talent will prove more durable than its competitors.
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By: Aisha Arshad
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wo years ago in 2015, Nida and Danish – who were a newly married couple at the time – were looking for a place to rent in Islamabad where Danish works as a banker. “we had exhausted ourselves trying to find a good place; it was a routine to wake up each day and visit estate agents around the city – that was our honeymoon outing,” says Nida with a chuckle. Nida and her husband spent almost two months looking for a place where they could settle in but failed. Sometimes they liked the apartment but the rent was too high, other times both the house and the rent disappointed them. It was then that a colleague in Danish’s office told him about oLX and the couple turned their heads towards the online
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classified portal launched in 2012 in Pakistan. “of course we knew about oLX, the “sab baich dey” tagline was very familiar to us but we did not know we could actually depend on an online site for this task,” said Nida. However, after spending a few days surfing through the site, the couple found a place they could easily call their ‘dream house’. “we went to check the house in Chaklala Scheme 3 and liked it at the first glimpse,” says Nida of the house she and Danish now live in. The couple resides in a two bedroom portion with attached bathrooms, drawing room, store room, laundry area and a lounge on ground floor for a monthly rent of Rs 18, 000 (approximately $172). “we really had a good experience and
“WE NOT ONLY LOOK AT HOW MANY TIMES A CUSTOMER COMES BACK, WE LOOK MORE ON THE ACTIVITY AS HOW MANY TIMES YOU COME BACK AND POST ANOTHER AD” Bilal Bajwa, GM OLX Pakistan
now I tell my friends too about OLX if they are looking for rental places or cars etc.,” said Nida. Nida and Danish are among the millions of users of OLX who motivated the global company to set up its offices in Pakistan last year – until then OLX Pakistan was operated out of Dubai. Profit sat down with General Manager OLX Pakistan, Bilal Bajwa to pen down the company’s five year experience in the country that has now become one of the exponentially growing markets in the South Asian region. Found in Argentina in 2006, OLX is owned by Naspers – a more than $60 billion multinational internet and media group. Currently operating in over 40 countries with a leadership position in 30, OLX Pakistan launched its operations in 2012 – since then the country has seen a tremendous growth in internet user base thus OLX users grew to a significant number too. “We have 500,000 users daily and 5 million users monthly,” said Bajwa of OLX’s growing customer base. Every day
as many as 25,000 ads are posted on OLX and according to the GM, 80% of the listers receive a response from their potential buyers within a week. Saud Gora, a 19 year old medical student from Faisalabad, vouched for OLX’s rapid response time by his own experience. “I had to sell my laptop and after waiting for multiple weeks on other classified mediums, I gave OLX a shot. I put up an ad and within a few days I found a buyer who was willing to pay the price I had quoted,” said Gora. Such experiences with the online portal have given confidence to the Pakistani masses
who have recently gotten accustomed to the online shopping experience and OLX has rapidly managed to secure the position of number one classified website in the country. The reasons behind achieving the number one position are too many, however for Bajwa the main reason is the company’s focus on retention of existing customers. “We not only look at how many times a customer comes back, we look more on the activity as how many times you come back and post another ad,” said the GM about the strategy which has made OLX Pakistan one of the highest in terms of retention in South Asia. Not only this but the company is also focusing on making OLX Pakistan more compatible to the needs of the local population. For this reason, categories such as business and agriculture, livestock, pets, tractors, and boats (for Karachi only) have been added to the website and app in the
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“A LOT OF PEOPLE COMPLAIN TO US REGARDING QUALITY OF THE LISTINGS (ADS), SO WE TOOK A REALLY STRONG DRIVE TO CLEAN THE WEBSITE AND STOP BAD QUALITY LISTINGS AND STARTED REJECTING A LOT OF LISTINGS” Muhammad Ammar Hassan, Head of Media and Customer Operations at OLX
recent months. The idea behind such initiatives is to make OLX the go to website for buying and selling of goods in Pakistan. Although, the most sought after category for the classified portal is of mobile phones, these new categories – though limited to a small portion – are expected to increase the coverage for the company. However, increasing the customer base is not the core focus of the OLX Pakistan team. Head of Media and Customer Operations at OLX, Muhammad Ammar Hassan in conversation with Profit said, “A lot of people complain to us regarding quality of the listings (ads), so we took a really strong drive to clean the website and stop bad quality listings and started rejecting a lot of listings.” He added that although in essence OLX Pakistan was letting lesser number of people post an ad – in other words: reducing daily listings – the company was focusing on improving liquidity which is now growing by leaps and bounds. Liquidity is something both Bajwa and Hassan consider important for the growth. “Liquidity is when you’re growing 100% year on year and you measure whether the new users that are coming in are successful or not? Or the people, who are listing, are they successful? Because that tells you if you’ll grow next year or not,” Bajwa explained the key metric of success that the company is deeply looking into. The improvement in quality of the content is indirectly helping the company spread its wings further in Pakistan which has a population of 200 Million plus. The
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fact that 2.5 million downloads of OLX app were made in last six months alone is a testament to the success of OLX’s strategy. Hassan said, “We do not only care about doubling our numbers, ‘user journey’ holds greater importance.” User journey as he explained is the scenario where the team looks into how a user’s one time experience led him to another. “If somebody posted an ad in cars, are they coming back for mobile?” said Hassan of the user journey that the company emphasizes on. Ifrah Amjad, seems to be a direct beneficiary of the improvement in content on the website. Amjad’s family recently decided to buy a car through OLX even though the family had concerns regarding the reliability of the product and the seller. “We decided to check the car ourselves and incidentally we got to know that the seller was in our neighborhood too. We saw it and it was exactly as it was described in the ad; we bought it,” Amjad, who now
owns a Toyota Passo – bought from OLX – recalled her experience after which she’s a satisfied customer who plans to go back again. OLX’s successful journey so far is quite impressive so far but the company understands that Pakistan is far behind in the global standing of the company; however, the potential seems to be getting stronger with every passing day and OLX intends to remain the number one choice of every classified user. As of right now, the company holds 92 percent lead in ‘top of the head market leadership’ – a number far greater than its competitors. On the conventional classified portals front – which the company does not seem to be concerned about – the team believes that with the growth of internet penetration and awareness more and more people will eventually join the online portal for three basic reasons, ‘it’s simple, it’s easy and it’s fast.”
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Hamza Wasi Hashmi (CEO, TerraBiz), Nadeem Hussain (Founder & Coach, Planet N Group of Companies), S. M. Shabbar Zaidi (Senior Partner, A. F. ferguson & Co. [PwC Pakistan]), Chris Skinner (Fintech Guru)
Atif Bajwa (President & CEO, Bank Alfalah)
Digital Banking & Mobile Payments Summit A panel discussion on ‘CEOs Perspectives on Ingraining Digital in Organizational DNA’ was organized by TerraBiz as part of Digital Banking & Mobile Payments Summit 2017 at Movenpick Hotel Karachi.
Mehreen Ahmed (Group Head Retail Banking), Bank AlFalah Ltd
Ariful Islam (Deputy CEO, Meezan Bank)
Zia Ijaz (SEVP, Group Chief Retail & Commercial, UBL), Syed Faraz Anwer (Partner, Business & Risk Consulting, PwC Pakistan)
Mujtaba Naqvi (GM - Senior Regional Chief, Habib Bank)
Ali Habib (Head of Corporate Affairs & Marketing at United Bank Limited (UBL), Dr. Syed Ismail Shah (Chairman, PTA)
Irfan Wahab Khan (CEO, Telenor Pakistan)
Mudassir Aqil (CEO, FINCA)
Sima Kamil (Deputy CEO, UBL)
Nauman Ansari (President & CEO, Faysal Bank)
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By Usman Hanif n a dynamic smartphone market where it is hard to keep track after having attained success in the international smartphone market, Lenovo is eying to secure a place among the top five handset producers in Pakistan. Lenovo is coming up with innovative ideas to capture different markets of smartphone globally. It recently debuted its Moto Z line of smartphones through its subsidiary Motorola Mobility in Pakistan. The handset debuted last year as one of the first modular handsets along with the LG G5. It released separate snapable addons, called Moto Mods that are connectable to the back of the Moto Z. The Moto Mods released are JBL SoundBoost speakers, Insta-Share Projector, power packs from Incipio and Hasselblad True Zoom. Motomods add modularity to the Moto | handset which makes it unique in comparison to its competitors. According to GSM Arena and Gartner, Lenovo became the second largest company in 2016 in term of selling cellphone units. In financial year 2015-16 it has grabbed double digit growth in emerging markets – 96 percent in Asia Pacific, 83 percent in Europe, the Middle East and Africa (EMEA) and 46 percent in Latin America.
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LENOVO IS COMING UP WITH INNOVATIVE IDEAS TO CAPTURE DIFFERENT MARKETS OF SMARTPHONE GLOBALLY. IT RECENTLY DEBUTED ITS MOTO Z LINE OF SMARTPHONES THROUGH ITS SUBSIDIARY MOTOROLA MOBILITY IN PAKISTAN “Due to enormous potential in the Pakistani market we envision to position ourselves in the top five cell phone companies,” said Sharay Shams, General Manager for Smartphone, Lenovo Middle East. Pakistani buyers have the purchasing power, so Lenovo is expecting strong growth here in the coming years. Pakistan’s yearly mobile phone sales have reached to 12 million, 3 to 4 million higher compared with 2014-15, he added. Lenovo is targeting the Rs10,000 to Rs75,000 range of mobile sets which is flooded by many popular brands like Samsung, LG, Oppo and others “To stay in business we have to produce a new innovative product after a certain while,” says Sharay. Slim and large mobiles sets have become a norm in the market now and the consumer demands something unique, so only through innovation they can make a dent in the market where already popular handset makers are present. Because of this very reason Lenovo has adopted the
tagline “different is better” when progress never ends, there is no best, only better, he said. Lenovo sold 3 million cell phones of the recently launched Moto Z globally and is ranked number 4 worldwide (outside China). A large geographical area of Pakistan still lacks in 4G coverage and remains among the biggest challenges the country faces in terms of internet penetration . “This is what I call opportunities,” says Sharay; large geographical areas needs large footprint for business however in turn it means a lot of business
“DUE TO ENORMOUS POTENTIAL IN THE PAKISTANI MARKET WE ENVISION TO POSITION OURSELVES IN THE TOP FIVE CELL PHONE COMPANIES” Sharay Shams, General Manager for Smartphone, Lenovo Middle East.
as soon we start covering it. 4G hasn’t penetrated many areas of Pakistan, but by the time it comes online, this turns into a potential market for smartphone makers. In Pakistan, Lenovo has contracted with distribution companies Muller and Phipps (M&P) and Mobile Sales and Distribution (MSD) in order to reach far flung areas of the country. The mobile market of Pakistan is divided into three regions, namely South region comprises of Sindh and Quetta Belt, Central region which covers whole of Punjab and North region which includes
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Islamabad and other northern areas of Pakistan. Sales wise Central region is on top, second is South Region while third is North region. The online shopping trend in Pakistan is revealing interesting facts about the country, it shows a constant growth in the country since its consumers are becoming tech savvy day by day, says Sharay. Over the next seven to ten years, a big portion of Pakistani market will be online which makes Pakistani market more interesting for Multinational companies.
TELECOM
By: Aisha Arshad
Inspired by Dubai’s ‘The Entertainer’ - a discount coupon booklet Tyrone Tellis along with his two partners launched Bogo in Pakistan which he aims to grow by focusing on customer satisfaction 39
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ehwish Nadeem, a 35year old housewife and home-based fashion designer, has recently found the ultimate way to save bucks on outings, dine-outs and parties. so far she has saved up to Rs5,000Rs6,000 on her recent sprees. This includes a night out with her husband when she did not want to cook at home, a sudden dinner plan with sisters who live in another corner of the city and a one dish party at her home in Defence where she utilized the recently bought Bogo Mini Book and saved money on food deliveries for her guests. Bogo – namely Buy One Get One – is a non-conventional voucher book featuring over 100 restaurants, salons, cafes and services where users can avail discounts and deals. Available in two variants: Bogo Mini
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can be bought for Rs 1,000 and Bogo Grand is available for a price of Rs2,000. The company has recently launched a mobile application as well for Rs2,000; however, the same app is complimentarily available to the buyers of the Bogo books. Customers can download and avail discount vouchers
AFTER ACQUIRING A LARGE CUSTOMER BASE IN KARACHI IN FIRST 10 MONTHS OF THE VENTURE, THE BOGO TEAM HEADED OUT TO LAHORE. THIS YEAR THE COMPANY PLANS TO RETAIN AND EXPAND ITS CUSTOMER BASE IN BOTH THE CITIES
updated frequently on the application. The voucher book can assist customers in saving up to Rs450,000 annually if all the vouchers in one copy of Bogo Grand are redeemed in a validity period of one year. ‘’i played a game on a Facebook group and won the Mini Bogo for half the price (Rs500),’’ says Nadeem who conveniently recovered her book’s price while redeeming her first voucher. Nadeem is happy and she intends to share her happiness with others as well. however, Aruba shoaib, a young student residing in Malir Cantt and Bogo user is unable to fully enjoy the book as Nadeem. ‘’i was one of the first few customers of Bogo,’’ says shoaib who first saw the book on Facebook through a sponsored advertisement by the company in February. she then ordered Bogo Grand through its website and received the voucher book worth Rs2,000 along with a complimentary
movie ticket. Her excitement soon turned into disappointment when she tried to redeem her first voucher. It was revealed to the Malir Cantt resident that Bogo vouchers – in most cases – were only valid for Defence and Clifton area. This must have disappointed her and till now has she has only used a couple of vouchers as she has to travel at least 15 kilometers to avail the discounts in her Bogo book. It is essential to mention here that Shoaib has recovered her full cost of the book in the few vouchers she has used till date. Both Shoaib and Nadeem have entirely different experiences of the same voucher book, however, they both seem to be intrigued with the idea Bogo brought to Karachi and this motivated Bogo to print its next edition in 2017, which is now available in the market at the same old prices. Moreover, existing customers like Nadeem and Shoaib have another advantage, they will be able to buy Bogo Grand on a discounted price of Rs1,000. This comes as a move from the management to benefit the loyal customers. Based on the concept of The Entertainer – a Dubai-based coupon book – Bogo was founded by Karim Kabir, Murad Somani and Karim Habib. ‘’The founders of Bogo were living in Dubai and they said okay, why don’t we have this concept [The Entertainer] in Karachi,’’ Tyrone Tellis, Marketing Manager Bogo, said while talking to Profit. Soon after, the three partners came
‘’WE ARE VERY CLOSE TO ACHIEVING THE TARGET THAT WE SET OUT AND [THAT] WAS NOT AN EASY TARGET. WE SAID LET’S DO IT, LET’S AIM BIG AND WE’LL ACHIEVE SOMETHING’’ Tyrone Tellis, Marketing Manager Bogo
back to Karachi and began their work in the beginning of 2015. The first Bogo book came out in January 2016 and orders via Bogo.pk started coming in. Tellis says the idea was ‘novel’ and the company managed to get ‘very close’ to their target of selling 10,000 books in the first year. ‘’We are very close to achieving the target that we set out and [that] was not an easy target,’’ says Tellis, further adding, ‘’We said let’s do it, let’s aim big and we’ll achieve something.’’ Achieving this target is essential for the new business given the fact that it is their only revenue stream After acquiring a large customer base in Karachi in first 10 months of the venture, the Bogo team headed out to Lahore. This year the company plans to retain and expand its customer base in both the cities. However the core problem Shoaib and other customers are facing still remains - the limited applicability of the discount vouchers in select areas of cities. ‘’That issue has been already addressed when we received complaints,’’ said Tellis answering the query regarding Bogo’s usefulness in Defence and Clifton area mainly. He added, ‘’We have now [included] outlets from Dolmen mall (Clifton, Tariq Road and Hyderi) to cater to the customers and then there are more restaurants from other
places.’’ ‘’Of course there are not many brands [as per our standard] in Gulistan-e -Johar and most of these brands are congregated in Defence and Clifton area. However, now the brands are expanding and going to other areas and as that happens [expansion of brands] the same will happen with Bogo,’’ said Tellis regarding the problem which the company hopes to overcome with time. Although it remains a hindrance right now for both customers and the management, Tellis says the team is motivated to keep in touch with their customers and make Bogo 2017 ‘better than before’. Customer service is the core focus area for the team Bogo, Tellis says that Bogo follows the mantra of ‘Customer is God’ and not one unhappy customer will be left out by Bogo management. ‘’Our goal is that [to ensure] not one customer is displeased with our product, for us one is one too many,’’ says Tellis regarding company’s policy. ‘’That’s what we work for,’’ he added. This practice was vouched for by Shoaib who was given complimentary vouchers to compensate for the unpleasant experience she had in the beginning. So much so that Shoaib plans to buy the voucher book’s 2017 edition as well. Comprising of a small team of 10 people, Bogo is determined to maintain its customer relationships. For this purpose, the team has set up its own call center and social media team. ‘’Call us anytime you have an issue or SMS us, or [contact through] Facebook,’’ says the Marketing Manager. ‘’We are constantly in touch with the customers […] we know what the customer wants,’’ he confidently assures.
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