Import bill for petroleum products to touch $6 billion this year

Sep 26 - Oct 02, 2005

Pakistan's import bill for petroleum products is bound to touch the highest level of $6 billion this year; the country has so far spent on oil purchases since its inception. However, the rising cost of oil import is beyond control of any government on the back of unprecedented and unabated demand for fuel around the world, especially in China which has launched developmental projects at a massive scale.

It is, however, a funny situation that while the unrealistic increase in oil prices has become a major concern for the developing economies, the oil marketing companies are enjoying windfall profits out of the booming oil business.

Recently, Shell Pakistan declared its financial results posting a profit after tax at Rs2.45 billion as compared to Rs1.50 billion of the previous year portraying almost double profits for the year ended June 2005.

Farooq Rahmatullah, Country Chairman of Shell Pakistan, while announcing the financial results said: "Over the last decade, Shell Pakistan Limited has developed a robust program of social investment. Significant highlights of this year include the inauguration of the first Shell-Marie Stopes clinic in Multan for the provision of free reproductive health services, and free eye camps with Layton Rahmatullah Benevolent Trust (LRBT) camps at installations in Mehmoodkot near Multan and Machike.

When PAGE invited his attention towards the hefty profits of the oil marketing companies with the claim of being a responsible corporate entity, then why they cannot sacrifice some of the profits to bring down the oil prices, which have widespread impact on general prices.

Farooq said that oil companies are allowed a 3.5 percent margin, which is still lower than the size of margin allowed by various countries in this region. He also said that after the overheads and after passing on the profit to the shareholders, the real earnings reduce to just 10 paisa a liter.

When his attention was drawn towards allegations of maneuvering in petroleum pricing by OCAC after every fortnight and if there is no manipulation why the oil companies were protecting the OCAC.

Farooq said: "OCAC is just acting as the front man of the government and it has nothing to do with oil prices except to announce them. It is the government that determines the prices". He, however, was full of appreciation for the government which according to him doing its best by absorbing additional cost of oil just to give relief to the consumers.

Shell Pakistan delivered strong results for the full year ended June 2005 by achieving a profit after tax of Rs2.451 billion as compared to Rs1.508 million, showing a growth of 63 percent over the same period of last year.

The improvement in profits, as attributed by the management, was due to a better product mix and increasing international oil prices.

A final dividend of Rs 27 per share was recommended by the board of directors which together with the interim dividend of Rs8 per share declared in January last will bring the total dividend for the financial year 2004-05 to Rs35 per share. Additionally, the board has recommended the issuance of bonus shares in the proportion of one share for every four shares held i.e. 25 percent.

Despite the healthy increase in profits, the year saw an unfavorable cash flow of Rs2 billion caused mainly by increased product costs that were not fully recovered as a consequence of the government's decision to freeze prices and initial line-fill for the White Oil Pipeline Project in which Shell is a 26 percent share holder.

Price differential claim recoverable from the government at present amounts to around Rs1.4 billion. Currently, the company is financing the subsidy to customers on diesel of approximately Rs5 per liter.

In terms of business operations, Shell has this year increased its retail site network strength to bring more convenient locations to customers. The retail visual identity network grew from 760 sites to 826 sites, and CNG network also grew from 77 sites last year to 96 sites at present.

Shell continues to focus on value-added products that deliver better performance and value to the shareholders by moving away from volume-oriented to a profit-oriented business model.

This is demonstrated by Shell's achievement of the highest throughput per site amongst major competitors.

Farooq Rehmatullah claimed that Shell brand is the most preferred brand amongst motorists across Pakistan. "We are constantly improving relationship with dealers through initiatives such as the Royal Dealers Club, which recognizes and extends performance awards to dealers .

In lubricants business, the year has seen some significant achievements, at the top of which is the partnership agreement between Pak Suzuki and Shell Pakistan, in which Pak Suzuki has recommended Shell Helix as the preferred engine oil for all of its cars being sold in Pakistan.

While Shell's aviation business has continued its strong performance with an increased market share in the past financial year and has once against contributed significantly to the company profitability.

Shell Pakistan has been instrumental in raising industry awareness on safe shipping operation through various forums and has recently carried out a vetting exercise of three PNSC vessels by Shell International Trading & Shipping Company (STASCO). This move has successfully facilitated the government's decision on enhancing local shipping standards to an international level.

The company follows strict criteria of merit in selection and growth of its staff. At present Shell Pakistan has 50 employees working on international assignments at places stretching as far as U.K. to Far East.