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An upbeat trend witnessed in the white oil sales during the first half of current fiscal year showed that most of the macro-economic targets set by government planners would to be achieved during the current year as growth is visible in key industrial sectors.
According to industry analysts, white oil consumption at 4.8 million tons was 4 percent higher than the similar period of last year.
White oil constitutes Motor Gasoline (Mogas), High-Speed Diesel (HSD), Jet Fuel (JP-1) and Kerosene (SKO). Recovery in Mogas consumption was especially noteworthy with a 14 percent growth.
Experts observed that HSD displayed a 4 percent growth during the period, which is likely to continue at a steady pace owing to expected economic stability and growth in the country.
JP-1 consumption also grew by 8 percent, whereas, SKO, which is already experiencing a receding demand, displayed a decline during the first half of FY04.
The overall oil consumption in the country, during first half of FY04 declined by 20 percent from last year owing to recession in black oil which stood at 53 percent lower than that during same period of last year.
Black oil constitutes Fuel Oil (FO) and Light-Diesel Oil (LDO).
Analysts attribute the situation in black oil sector to the improvement in natural gas availability and hydel generation in the country during recent past and the ever-growing conversion of power plants and other industrial units to these resources in line with the GoP's directive of more reliance on indigenous resources, which generate substantial savings in import bill.
Oil experts, however, predict a continued steady growth in white oil consumption in the future with the maximum benefit of the anticipated profits going to the state-owned oil giant Pakistan State Oil (PSO), being the major stakeholder in this business sector.
During the same period (July-Dec 03), Shell Pakistan Limited, a subsidiary of Royal Dutch Group, registered a profit before tax of Rs 0.82 billion and profit after tax of Rs 0.57 billion, which was 35 percent and 33 percent lower than last year's same period, respectively.
PSO again outperformed the competition with a noticeably wide margin. The profit before tax for PSO stood at Rs 3.25 billion and the profit after tax was Rs 2.12 billion, 12 percent and 3 percent higher than that during the same period last year.
According to industry experts, PSO capitalized mainly on high margin products, and successfully neutralized the expected effect of recession in oil consumption.
PSO's gross margins showed marked improvement during the last three years from 3.3 percent to 4.3 percent and its earnings before income tax (EBIT) margin also moved in the same direction (from 2.0 percent to 3.1 percent) whereas its closest rival remained stagnant (FY01: 2.2 percent & FY03: 2.3 percent).
An analysis of key financial indicators reveals that PSO again maintained its leadership vis-à-vis its multi-national rival. PSO's return on capital employed (ROCE) grew at much higher rate to 13.8 percent from 7.5 percent during the last three years whilst Shell also showed some improvement by increasing its ROCE to 10.2 percent from 9 percent.
Likewise, Shell's return on assets witnessed same nominal increase of almost 1 percent (FY01: 8.8 percent & FY03: 9.7 percent) whereas the oil giant registered an increase of 5 percent (FY01: 7.5 percent & FY03: 12.5 percent).
Similarly, return on equity for PSO went up to 31 percent from 23 percent (an increase of 8 percent) and Shell again showed a nominal increase of only 2 percent from 19.6 percent to 21.4 percent.
The oil experts attributed the growth in PSO's profits to its thrust on higher margin products especially white oil that had been a forte of the Shell till four years back.
During the last 4 years, PSO's motor gasoline participation increased to 44 percent from 39 percent, whereas Shell's share plunged to 36 percent from 43 percent.
In diesel, the story is not much different. PSO successfully increased its participation to 61 percent level and Shell came down from 31 percent to 26 percent.
Analysts feel that the bulk but prudent investment made by the state-owned company specifically in its New Vision program backed by strong sales promotion efforts and innovative products has enabled the national company to derive maximum returns as indicated in key financial indicators.
There is a consensus among industry experts that the strong financial base with prudent strategic initiatives by PSO management rendered PSO an advantage that could be the deciding factor of earnings and market consolidation and would yield lucrative price to GoP from potential investor(s).

Copyright Business Recorder, 2004

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