— An oil marketing company with a difference
By AMANULLAH BASHAR
Nov 19 - 25, 2001
Tariq Kirmani, Managing Director, Pakistan State
Oil Company Limited
A committed and thorough professional carries rich
experience spread over three decades to his credit. His wide exposure
to the oil industry in the United States, Australia, United Arab
Emirates certainly adorned quality of leadership to run the huge
organization like PSO with a network spread all over the country.
Having a Masters degree in Business Administration,
Kirmani served the oil sector in various management positions
especially in Marketing, Operations and Finance. In 1991 he was the
first Pakistani to be elected as a Company Director of a multinational
oil company. Currently, Kirmani is also serving as director of
Pakistan Refinery, Pak Grease, Attock Petroleum Ltd. and recently been
appointed as the Chairman of Oil Companies Advisory Committee (OCAC).
The handsome financial results and a number of
distinctions achieved by the Pakistan State Oil (PSO) in various
segments of its business operations during financial year 2001
categorically deny the general perception usually considered about the
performance of the public sector organizations in Pakistan.
The class of performance, the company demonstrated
during the year is well reflected in its record sales revenue of Rs170
billion, up by 26 per cent over the previous year. Record profit of
Rs6.4 billion, net profit of Rs2.25 billion after tax, 12.4 per cent
up over the previous year, and retaining of its 17 year status of the
top performing company at Karachi Stock Exchange are the figures in
black and white are certainly louder than the words of praise the
company really deserves.
Honouring the method of sharing, the PSO management
announced a final dividend of 60 per cent (Rs6 per share). Combined
with the prior declared interim dividend of Rs4 per share, the total
dividend amounts to Rs10 per share making a total pay out of 100 per
cent for the financial year 2001. This will result in cash pay out of
Rs1.43 billion as dividend to sharesholders.
One naturally becomes inquisitive to know about
factors pushing the company for such kind of performance in the face
of a harsh competition offered by multinational companies especially
in view of the sinking image of the public sector organizations
causing losses worth over Rs90 billion a year to the government.
The sense of achievement which, generally gives
confidence, was visibly reflected in his simple but firm tone while
Tariq Kirmani was talking about PSO.
Knowing the art of making people easy with whom he
converse, Tariq Kirmani encouraged me to ask whether he or his company
feel any threat from private sector companies especially after
deregulation of the oil marketing and imports by the government.
Taking the question with a smile on his face Tariq Kirmani came out
with a big "No". Instead of feeling any threat we are
finding ourselves more comfortable in discharging our duties
especially with a sense to serve our own people. Actually it is the
private sector which seems to be uncomfortable due to outstanding
performance of the PSO in different disciplines of the business. In
fact PSO is importing oil at cheaper prices as compared to the private
sector. Hence we are in a position to sell even at cheaper rates as
compared to the private sector companies. However we all have to work
under a given price mechanism. Since the business operations of
private companies are naturally profit oriented they might feel threat
from PSO because it is in a position to sell at cheaper price.
He said that as a market leader, PSO has adopted a
dynamic approach to flourish in an era dictated by intense
competition, deregulation and economic challenges. In this regard,
integral to our strategy is the "New Vision Program" that
symbolizes our new outlook towards the future while the "New
spirit" guides us to become even more competitive.
Tariq Kirmani, who is also the Chairman of
"Oil Companies Advisory Committee" (OCAC), said that oil
marketing companies are operating in Pakistan under a pricing
mechanism provided by the government.
Deregulation & price mechanism
The government taken a number of steps for staged
deregulation of the oil and gas sector.
Effective 1st July 2001. The import of Gas Oil was
deregulated effective 1st January 2001; the LPG prices were
deregulated from 1st September 2000.
The oil marketing companies through OCAC from 15th
March 2001 implemented self -management of freight pool. Deregulation
of prices is likely to erode oil marketing companies' margin.
The components that determine the selling prices
include ex-refinery prices excise duty, petroleum development levy,
inland freight, dealer margin, distributor margin and sales tax.
Under that mechanism POL pricing being done on
approved pricing mechanism which is tied up with the international oil
prices. However the government levies which goes to the exchequer are
included in the oil prices. The components of selling price include
ex-refinery/ import price, excise duty, petroleum levy, inland
freight, dealer margin, distributor margin, sales tax and a possible
difference due to rupee-dollar parity based on average inter bank rate
for every fortnight.
When his attention was invited towards the fact
that there was a downward revision in petroleum prices during last two
months but it is unfortunate that the benefit has not been passed on
to the grass root level or to the common man. While the middleman or
the bulk consumers are pocketing the advantage of price reduction. For
example the transporters, airlines, railways, power generating
companies and the manufacturing sector using fuel oil have not passed
on the benefit by reducing fares or electricity charges or industrial
products. The reduction in oil prices should be linked with the
procedure that makes it possible that the benefit has been passed on
to the consumers. There is no point in reduction of oil prices if the
common man is not gets the benefit.
Tariq Kirmani agreed in principle that there should
be a mechanism to ensure that the benefit is passed on to the end
users. He added that the issue was discussed in the cabinet also.
However he suggested that provincial governments should take up the
issue and see to it that the benefit has been passed on to the end
users. It is a good suggestion he said and added that it is workable
and it is up to the provincial governments to look into it.
The downward revision of POL prices brought the oil
price further down and the consumers are justified in expecting a
relief to the end users especially in the transport and utility
On Nov.15 the price of HOBC were reduced from
Rs34.32 per litre to Rs.33.71, Kerosene from Rs14.94 to Rs14.40, High
Speed Diesel from Rs16.59 to Rs15.09, Light Diesel from Rs14.02 to
Rs13.40 per litre while JP4 was brought down from Rs14.11 to Rs13.58
per litre. This is for the third time that oil prices have been
reduced. It is moral obligation of the provincial governments to
ensure that the benefit is passed on to the consumers at the grass
Although the government has granted marketing
licenses to a large number of oil marketing companies including some
refineries, however three active oil companies in Pakistan capture the
market. These companies include Pakistan State Oil, Shell and Caltex.
PSO is the largest among the three, meeting some 70
per cent demand of petroleum products in the country. However the
worldwide economic recession in general and highly disturbed
conditions in this region have their own effect on Pakistan's economy.
The industry consumption of POL products has been essentially
stagnant, depicting a negative growth of 0.5 per cent primarily due to
economic recession. During the 1st quarter of the fiscal year, the
industry's demand declined by 15 per cent over the last year.
There was a decline in demand of some major
products like Motor Gasoline (MOGAS), Light Diesel Oil (LDO) and
Superior Kerosene Oil (SKO) whereas fuel Oil (Furnace Oil) and High
Speed Diesel (HSD or Gas Oil) showed a nominal growth.
Key products like jet petroleum (JP-1), MOGAS, SKO
and LDO declined by 8.2 per cent, 5.7 per cent, 6.2 per cent, 10.8 per
cent while HSD and Fuel Oil showed marginal growth of 0.6 per cent.
PSO was established in 1976 through the merger of
ESSO, Premier Oil Company and Pakistan National Oil. The company is
the largest oil marketing company in the country with around 70 per
cent share of the oil market and, as such, forms the backbone of the
country's fuel and energy needs.
The company is engaged in the storage, distribution
and marketing of petroleum products, petrochemicals and CNG. It has
more than 3,800 retail outlets, 28 storage depots and nine
installations all across the country.
It is the lowest cost supplier with assured access
to long term supplies. During the year 2000-01, the company sold 12.7
million tons with revenues of Rs135 billion.
Tariq Kirmani attributed the outstanding
performance of PSO to the committed squad of the managers moving ahead
with a team spirit guided towards the goal with clarity of vision and
sincerity of the purpose. Citing the example of dedicated efforts on
the part of PSO workforce, he said that despite the industry
registering a decline and adverse factors, PSO sold 12.6 million tons
of petroleum products in the July 2000-June 2001 period, which was
essentially the same volume achieved in the preceding year. The
continuing decline in PSO's market share of key products has been
arrested. During the review period, the company increased its market
share of motor gasoline to 40 per cent from 39 per cent while the
decline rate in HSD was reduced.
The company has initiated a series of measures to
strengthen the brand image and arrest the chronic decline in the
market share of key products. During the Financial year 2001, the
company maintained its strong focus on New Vision retail Development
program, commissioning record 185 outlets bringing the total to 295.
The company has been laying special emphasis on quality and quantity
of products. In this regard, 7 more mobile Quality Testing Units have
been added in major cities bringing the total to 12. PSO also plans to
provide Internet at 500 retail outlets, especially in inaccessible
areas. The facility is already provided at 150 outlets. The company
has installed " Price Display unit" at its monoliths and
pylon signs to inform customers about the retail prices and introduced
new products like Castrol GTX-XL and various other grades of
After successfully handling fuel oil deregulation
and imports, PSO has become the first Oil Company to import
approximately 33,000m tons HSD at Zulfiqarabad Oil Terminal. PSO
undertook various projects to enhance storage and handling capacities
at depots and installations and to bring them at par with
international Health, Safety & Environment standards.
The new arrangement for HSD handling has not only
relieved Karachi from noise and environmental pollution but also
reduced the traffic congestion of POL tankers at Keamari. In the past
few years, Mogas is being rapidly replaced by the Compressed Natural
Gas (CNG) as fuel for a variety of vehicles. To cater to the demands
of this growing segment, 30 PSO stations are now providing this
facility while 40 more CNG stations are in various stages of
completion. A new lubricant specifically developed for CNG engines are
also being introduced. With the availability of greater quantities of
liquefied Petroleum Gas 9LPG) from PARCO and other refineries, PSO is
attaching an even greater emphasis on providing this customer friendly
fuel to areas where natural gas is not available. For staged
deregulation of the oil and gas sector, PSO is all out to consolidate
its strength to stay ahead of the competition, as PSO's motto is to
pass on the benefits of deregulation to the valued customers.
PSO has taken a number of steps to improve its
corporate image and increase its market share over the last several
years. An aggressive plan has been launched to build New Vision
outlets to provide better quality service to customers. Some 295 New
Vision retail outlets all over the country have been established in a
short period of two years.
The number of company-owned and company-operated (CoCo)
sites has increased to 20 to set high standards of customer service.
The company has also embarked on an ambitious
program to promote the Internet, specifically in accessible areas all
over Pakistan. A total of 500 retail outlets are to be provided with
Internet facility, which is now available at 150 outlets.
The company has introduced quick oil lube vans with
an aim of providing customers oil change facility at their doorstep.
Some 12 mobile Quality Testing Units have also been provided to ensure
proper quality of products at retail outlets. These units are
operational in Peshawar, Karachi, Multan, Lahore, Islamabad and Faisalabad.
The company has also set up Easy Payment Centers,
in collaboration with Citibank, at selective retail outlets for
payment of utility bills. The centers have been initially set up in
PSO has adopted a customer-focused approach and is
catering to all the segments of the market. In this regard, PSO has
recently extended its product line of lubricants, introducing products
for the segments that were previously untapped.
The company has restructured its existing system to
provide a more speedy and efficient system for handling and resolving
complaints. Under this initiative, a computerized "complaint
Logging System" for efficient data entry has replaced the
existing manual system.
A new White Oil Pipeline (WOPP), with ultimate
capacity of 12 million barrels is being laid from Karachi to Mehmudkot,
and is expected to commence by December 2002. PSO has acquired 12 per
cent equity in the WOPP project, incorporated as PAPCO, with a total
project cost of $480 million. PSO will be able to capture 100 per cent
business of Lahore Airport since the company is building the Lahore
terminal Complex, which is likely to be completed by November 2001.
AT A GLANCE (TABLE)