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“Engro Chemicals Limited Pakistan”
“Issues in weaknesses of financial operations and Internal Control of ECPL”
Subject: Corporate Governance
Submitted To: Sir Ishtiaq Ahmed
Class: MBA-V Submitted By:
1. Qasim Raza 11313
Department of Management Science
NATIONAL UNIVERSITY OF MODERN LANGUAGES
SECTOR H-9, ISLAMABAD

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Issues in weakness of financial operations and Internal
Control of Engro Chemicals Ltd:
Engro focuses on flawless implementation of the significant growth initiatives in all businesses;
fertilizers, food, energy, chlor-vinyl, chemical storage and industrial automation. Engro has also planned
to continue to sources and retain its quality people to sustain its growth.
Urea demand is expected to be problematic whilst phosphate demand expected to be affecting by high
international prices
The board would like to take opportunity to express its appreciation to the dealers and employees for their
dedication throughout the year. The Board also acknowledge the support and cooperation received from
the Government, Joint ventures, Partners, Bankers , Suppliers, Contractors and other Stakeholders.
These are following challenges and issues are faced by the organization;
1. Shortage of irrigation water:
Both during the Rabi (winter) and Kharif (summer) season for crop sowing, it led to reduced
former income. As a result overall, urea off take fell by 1% to 4 metric tons, whereas demand for
DAP (Di- Ammonium Phosphate) fertilizer dropped by 5% to 1.2 metric tons. ECPL faced a
marginal declined in Urea volumes (0.6%) and 17% declined in sales of imported DAP fertilizers.
The sale dropped in case of DAP is attributable to drought condition and insufficient supply
sourcing in a period of uncertainty relating to GST levy in Pakistan. The Govt. imposed 15%
GST on the selling price of DAP and other fertilizers w.e.f Sep 02, 2001.
2. Increase in Gas Prices:
Fertilizer policy was announced in August 2002, which maintain subsidy on feedstock (gas used a
raw material - constituting 20% of COGS/Ton) with fixed feedstock price increases stipulated for
the next 5 years. However, fuel stock (gas used for the running plant – constituting 40% of
COGS/Ton) prices would continue to be deregulated and adjust every 6 months. Now fuel stock
prices are deregulated after 3 months.
3. Start up losses on NPK operations:
ECPL expanded into 100k NPK (blended fertilizer) plant, which came to operations in Apr ’02.
However, initial testing problems sakes to 24k tons against production of 31k tons. NPK business
showed a loss of PKR 109 million.

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4. Loss of Production:
ECPL’s Urea production during the year was down by 2% to 790k tons on account of certain
productions issues which were significantly smoothened towards the end of year.
5. Does not hold Market Premium:
Engro Urea does not command the same market premium as its competitor Fauji fertilizer
production “Sona”. However, Sona Urea sold mainly in the Punjab province. Whereas, Engro ha
s a strong niche in Sindh province.
6. Financial Risks:
ECPL expands their business day by day in different product lines, by a larger segment with
value- added supply chain. It may be affects ECPL by major financial risks includes; sales
reductions, declined share price, technological faults, greater overhead expenses, shortage of
necessary resources, expensive raw material and high prices of their products in the market.
7. Market Shares:
ECPL hold only 19% of the market shares rather than its competitor FFP holds 40% of
the market shares.
8. Economic Crises:
ECPL also faced economic crises in Pakistan due to bad situation of stock market by war and
terror, political instability etc. However, local and foreign investor did not willing to invest in
companies situated in Pakistan.
9. Expenses on Training:
ECPL spend huge amount on their employees training by highly qualified professional
and experts. This receives large amount of remuneration from organizaatiom to provide
their expertise.