Emirates National Oil Co (Enoc) has teamed up with Saudi fuel retailer Aldrees to build at least 40 service stations in the kingdom, the companies said on Tuesday, in a deal the Dubai-government owned retailer hopes can recover some of its losses at home.
Convenience stores and car washes at Enoc forecourts in the UAE go some way to alleviating the financial burden of selling fuel at the petrol pumps at well below the price Enoc pays for it on international markets.
But the UAE market is not big enough to offset fuel sales losses which Enoc has said would exceed $730 million in 2011. So Enoc has formed a 50:50 joint venture with Aldrees Petroleum, which enjoys healthy sales margins thanks to plentiful cheap supplies from Saudi Aramco, to increase its revenues abroad.
"We make good returns on the non-fuel business but it doesn't compensate for the losses that we have," Burhan Al Hashemi, managing director of Enoc Retail, told reporters at a signing ceremony in Dubai.
"So that's why for the whole organization is to go outside and explore new markets."
Enoc shut fuel pumps at its petrol stations in the northern emirate of Sharjah last year to limit losses from selling fuel at federally set prices well below its acquisition cost. The profitable Sharjah forecourt shops remained open, but the pump closures caused fuel shortages and long queues at remaining forecourts in Dubai's poorer neighbouring emirate.
Although the retail prices of fuel at Saudi pumps are less than half those in the UAE, because the price state-run Saudi Aramco charges Saudi retailers for its gasoline is even lower, Enoc expects its partnership with one of Saudi Arabia's largest fuel retailers to be much more profitable.
Abdulelah Saad Aldrees, the head of Aldrees Petroleum, said Aldrees buys 91 octane gasoline for 0.36 rials a litre (less than 10 U.S. cents) and sells it at 0.45 rials (about 12 cents). It pays 0.51 rials for 95 octane gasoline and sells it at 0.60 rials, he said. The higher octane gasoline costs about 1.75 rials in the UAE.
Aldrees operates more than 450 filling stations in Saudi Arabia, and the partners plan to build at least 40 more in the first phase the 400 million dirham investment plan. The first is expected to open next year.