Habibullah Khan

Founder and Chairman of Mega Conglomerate – Mega & Forbes Group of Companies (Mega Group – MFG)

The current government has now been in power for over six months. How do you see Pakistan evolving under the Pakistan Tehreek-e-Insaf (PTI) government?

Traditionally in Pakistan we have had two major political parties, the Pakistan Muslim League (PMLN) and the Pakistan Peoples Party (PPP). Over the last 20-25 years the PTI has been slowly establishing themselves in our national political landscape and have recently managed to win our 2018 elections. The party came into power on the back of very ambitious policy declarations without really understanding the fundamental challenges our economy faces. So delivery thus far has not been in line with expectation. This ties into what seems to be a lack of appropriate preparation in terms of taking the reigns of government; so a lot of their commitments in terms of making a “New Pakistan” (their campaign slogan) have not been fulfilled.

Based on my individual assessment, the party has good intentions, but good intentions alone do not really translate into taking a country to the next level. Implementation and policy/governance is critical. When they came into power they created a wave of anti-corruption rhetoric focusing on eradication of corruption. This is something they have been tackling albeit with mixed results. Another issue I see is the continuous pointing of fingers at past governments for the situation the country is in, playing a “blame- game”. This is human nature and something we have witnessed previous governments do as well. It must change. The past is the past and the current government must focus their energy on growth rather than continuing the blame trend.

While the Prime Minister has a lot of positive ideas there is also a requirement for serious planning to move forward, it will take the government some time to implement sustainable change because the majority of people who have taken positions in government ministries are new to their roles and lack expertise and experience in their respective fields. The Prime Minister is also new to the inner workings of the system at his level so he still has to learn how the bureaucracy of Pakistan works. New policies need to be put in place that will enable foreign direct investment to come in the country and there must be consistency in these policies. Gaining local investor’s confidence and encouraging them to invest in the country is a key indicator for foreign investors to follow.

After meeting with the Minister of Commerce, Textile, Industries and Production, he mentioned that the country was boosting its exports of value added goods, lowering taxes and improving the “ease of doing business”. What is your vision of the business landscape in Pakistan and where is it heading?

Let me start by giving you an example; before PTI came into power, we had a whole team sitting with them and working toward finding a solution to mitigate the looming water deficit Pakistan could be facing. We gave them a mandate, explained what needed to be done and spent a lot of time and effort on educating the party. Our people are continuously in touch with the government even today. We have gone so far as identifying 7 large projects that would mitigate the water shortfall in the city of Karachi. There is a project in which we want to convert sewage water into usable water for industries, we have also given them an option of converting the usage of two of our units from our 1200 Megawatt furnace oil power plant to desalination plants supplying 300 million gallons per day to Karachi on a fast track basis. This would have closed the gap between the 600 million gallons per day that is presently available and the 1100 million gallons per day that are required for the city, but the government takes too long to make decisions and the project is on standby. So undoubtedly decision-making needs to be quick and clear, whether it be yes or no.

Ease of doing business is primarily linked to consistency in policymaking and regulations. It is linked to removing red tape and simplifying regulatory framework. It is linked to direct planning and fast implementation. If the PTI government can deliver on these broad guidelines in a short time then the future of Pakistan is most definitely positive.

Mega Conglomerate is a diversified conglomerate with business holdings including the country’s largest container terminal, the largest shipping and logistics businesses in the country, third largest dairy producer, top tier cement manufacturing company, vertically integrated energy utility company, most progressive real-estate developer responsible for the only L.E.E.D. certified commercial building in Pakistan and it is the biggest shareholder in Hub Power Company. What are your objectives for 2019?

We are one of the largest groups in terms of investment in Pakistan; just in the power sector alone we have invested around 4 Billion US Dollars through the Hub Power Company (HUBCO) in growth projects considering the energy requirements of the country. Apart from that we are expanding our cement capacity by putting up a 9000 ton per day cement plant, which is a 300 Million US Dollar investment creating about 5000 jobs during engineering, procurement and construction. The plant will be commissioned in June. Within HUBCO we have created Hub Power Services Limited (HPSL), a wholly owned subsidiary that has been incorporated to manage operations and maintenance of its existing power assets, its future projects and explore onshore and offshore operations and maintenance business opportunities. We have signed joint venture agreements with General Electric on operations and maintenance business contract bidding and are looking at co-investing globally with them to bring in foreign exchange into the country. In general this is how our 2019 is looking, but our focus is on our group vision leading up to 2025 and beyond.

Regarding the Metropole Hotel Project, you said that you want to build a city within the city, a district with four different components. One will be a globally recognized six-star hotel. Next to that, branded apartments sharing the hotel’s facilities, then an office tower and a utility centre. How is this project going along and when do you plan to have it finished?

As of today we have finalized the global award-winning architect for the project and have begun the design phase with financial modeling and planning completed. Total timeline for the project is 5 years as it is dependent on several different elements. We expect to break ground end of this year. The project has a covered area of close to 2 million square feet and sits on a 4 acre lot of land right in the center of Karachi on arguably the most prime and recognizable site in Pakistan.

What is your input on the power generation sector in Pakistan as well as the dairy industry since you are one of the biggest players in both sectors? What is your strategy and why is it so important to Pakistan?

The current cost of electricity is very high at close to 13 Cents per Kilowatt-Hour; we need it to come down to 7 Cents to be competitive globally. If our cost of power remains this high it will be difficult to compete with countries in South East Asia such as Vietnam, Singapore and Malaysia for global trade.

The Government has taken several positive measures toward closing this gap in pricing. Previously 80% of our power generation was based on furnace oil generation and there has been a gradual shift away from
this. We now have coal power plants indigenizing our fuel source and there is a large push towards renewable energy such as solar and wind power.

Pakistan never had a coal base in its energy mix but today this has changed with the addition of new units such as our Thar Coal energy projects, which are projected to produce 660MW of electricity through two companies Thar Energy Ltd. and ThalNova Ltd. We are shareholders in Sindh Engro Coal Mining Company where we are mining enough coal at Thar Coalfield Block 2 to produce 5000 MW of power by 2025 The entire coalfield itself has a 175 Billion-Ton coal reserve, enough to produce 100,000 MW of electricity for 200 years.

When looking at growth of population statistics, Pakistan is expected to be almost 300 million people by 2035. With our current plans we expect the country to be generating around 30,000 megawatts in two years time. Unless we have power growth of 7% annually, there will be electricity shortages as old inefficient plants need to be retired and energy consumption per capita will continue to grow; therefore it is a priority of the current government to continue growth in the power sector. Another key issue is transmission and distribution losses, which are close to 30% due to inefficient and under capacity transmission lines and collection losses from distribution companies. The government is effectively managing both these issues through large-scale transmission projects and planned privatization of distribution companies. We hope to participate in these initiatives.

Growth in Pakistans packaged dairy industry has been appalling unfortunately. Almost 60% of the voting population of the country lives in the province of Punjab where you will find that a large number of people are involved in small-scale unregulated dairy business and have their own cows supplying loose unhygienic milk to different regional pockets. Our company, which is a formal sector firm, produces high quality UHT milk in Tetra Pak cartons. Packaged dairy only represents 7% of the dairy consumption in the country. This figure should be 80% not only from an economic perspective, but also from the perspective of health and disease prevention. People are buying raw untreated/unprocessed milk ripe with disease and handled in extremely unsanitary conditions.

The government however has not been able to standardize the direction required for formal milk sales and processing. They must develop a long-term model for the dairy sector looking at comparable dairy models globally. We are currently in talks with the Commerce Minister to change this. A good plan can see the dairy industry grow 10 folds in the next 3-5 years. From a political point of view, politicians in the National Assembly are obviously not very keen for a formal sector to be created due to a potential farmer backlash, so there is always resistance from their end and therefore the industry has not grown to the required extent. In short, the government needs to step in and make adjustments in policies and regulations that will allow the formal sector to grow.

You also plan to set up a desalination plant and use the company to power that plant to provide water to Karachi, collect waste from the port city and make regional hubs. You are also planning to buy a commercial banking institution. Any other projects or expansion plans that you would like to talk about?

Pakistans exports have become very low for the past 10 years and we have been short of foreign exchange, I have given a recommendation to the government that we should invest in the right technology to increase our exports in the next 5 years and reduce the trade deficit instead of getting into value added goods, textile or diversification of our exports. We need to encourage our businessmen to invest in foreign countries in order to outmatch the current trade balance deficit through repatriation of dividends, but the government needs to make it easier for them. We as a group are looking at power projects and large scale manufacturing projects in Malaysia, Kenya, Tanzania and Canada.

Which communication strategies are you currently using to promote your companies and how would you like to develop them?

We believe in a clear concise results oriented approach. Of course a lot of our companies are privately owned and not publicly listed so information flow is not so easily accessible to the general public, but primarily our focus is on value creation and growth with a hope that our companies results speak for themselves.

With over three decades of active patronage and participation in social and environmental welfare, you have also become strongly associated with various charitable causes; recently donating a building for visiting professors at the Institute of Business Administration in Karachi. How important is philanthropy for you and in which CSR projects are you involved in, lately?

All our companies have allocated budgets for CSR with some having a committed bottom line percentage going toward CSR projects. We make schools, hospitals, try to improve the work environment at our offices and plants, but most importantly we provide sustainable jobs. We are always happy to contribute where we feel donations can make a difference, but the main difference we aspire to make socially is through job creation enabling our people to have concrete long term employment to contribute to their and their families development.

What is your final message to the readers of USA Today who consider Pakistan as a potential investment destination?

What I would tell anybody from any part of the world is that Pakistan is a country where investment opportunities are immeasurable. With a population of over 200 million, the type of resources (both human and natural) that we have and the current developments under the China–Pakistan Economic Corridor (CPEC), I believe that Pakistan is on the trajectory to be a global investment growth market with fantastic returns.The one window system that the new government is trying to put in place should make the investment process much easier from a regulatory point of view for international investors looking at the country.