Record high oil prices have not meant a massive payday for everyone in the industry. Emirates Business met Rashid Al Shamsi, general manager of Dubai-based Emirates General Petroleum Corporation (Emarat), and heard how downstream petrol retailers in the UAE are suffering. He talked about the company’s significant losses and its strategies for surviving the challenge and expanding across the UAE.
How do you evaluate the performance and growth of Emarat in 2007?
Emarat’s operational performance for 2007 has been very encouraging. We have registered all-round growth in most of our business streams.
What is the breakdown of performance in the different lines of services and products of your company?
In the motor spirit sector, sales volumes for 95 Octane fuel declined by 10 per cent due to the introduction of a lower priced product by a competitor, while the 98 Octane fuel volumes jumped by 24 per cent.
Why is 98 Octane fuel so popular?
There has been an increase in its consumption in luxury cars due to the superiority of the product as per the car specifications.
What about diesel, lubricants, natural gas and non-fuel services?
Diesel, jet fuel and lubricant sales volumes have gone up by five per cent while liquefied petroleum gas sales have scored 50 per cent growth. But natural gas transmission volumes have gone down by 30 per cent. Our non-fuel services like convenience stores, Lube Express, Bakeria, car washes and Shamil vehicle inspection service outlets have grown by 20 per cent.
There has been a lot of talk about Emarat losses, what is going on?
We have been suffering severe losses at the petrol retail outlets, which has been affecting our growth plans badly. We buy petrol at the international price of almost Dh12 and we sell it at the pump at an average of Dh6.25. We depend on loans guaranteed by the shareholders to cover our losses and cash flow deficit. However, we have become victims of our own retailing success as we find that more and more motorists refuel their vehicles in our service stations due to the range and high quality of non-fuel services available there, thus adding to our losses.
How long can this go on?
The decision to liberalise and subsidise petrol prices rests with the UAE Cabinet. The Federal Government made a conscious decision to continue subsidising petrol to curb inflation and to fuel the economy.
How is the performance of 2007 compared to previous years and what are your expectations for 2008?
Despite the steep increase in fuel prices more than a year ago, demand has hardly slackened. We, therefore, expect the same growth trend to continue in 2008 and beyond that it is in parallel with the explosive growth and development in the UAE.
Is Emarat planning to build more petrol stations in Dubai and other emirates? If so, how many and where?
Yes, five new gas stations will be opened. Two of them will open in the next couple of months in Dubai and Sharjah. The other three will open within six months and will be on Emirates Road in Dubai, Sharjah and Umm Al Quwain – one in each emirate on that road. But we are moving very cautiously because we are facing the same situation as other petroleum retailers.
Oil has reached the $100 mark but at the same time the dirham is getting weaker due to its link with the dollar. How do you see Emarat dealing with such challenges in the oil market?
The weak dollar is affecting our operations as much as it affects the general business in the UAE. Due to the fixed peg with the dollar, the dirham is artificially low. This has the effect of increasing our purchase costs, especially those purchases that are not denominated in dollars. The cost of purchases from the local market has also increased due to the weak dollar. Although there is no apparent exchange loss, the weak dollar has been factored into the high crude prices.
So who is benefiting from such high oil prices?
The high crude price has benefited the upstream oil and gas industry, but has badly affected the downstream industry like petrol retailing. So the continued weakness of the dollar will affect our business.
Does Emarat have plans to expand its retail outlets to other GCC countries?
Emarat already has retail outlets in Egypt, which represents a very large market. And we are carefully studying other markets in the region where our brand can be deployed.
So why not the GCC?
Except for the UAE, other GCC countries adopt different domestic pricing policies as retailers enjoy fixed margins despite acquisition cost fluctuation. And the hike in real estate prices, construction costs and operations are becoming an obstacle in expanding into such countries with such fixed but low margins. In addition, the domestic retail business losses are putting a halt on further expansions of our network.
There has been a lot of talk about the fact that Emarat petrol stations have stopped accepting credit cards. Who is behind the action, the credit card firms or Emarat?
Due to our losses, it was tough to pay that extra 1.65 per cent to the credit card companies. We wanted to renegotiate for a reasonable charge of one per cent, which is a normal rate applied elsewhere in the world. After the negotiations failed, we started to charge this percentage to customers. Credit card companies then withdrew the service from our retail outlets.
What plans, projects or ventures does Emarat have planned for the next year and beyond to make it an even more distinguished brand?
We do have plans and we are currently working on some of the prototypes. Market studies are being done to evaluate the various options at our disposal. We aim to launch more promotions through which we aim to add more value to our products. Emarat plans to set up a franchise package for our mini marts – Emarat Plus and Bakeria – as fast food concepts at offsite locations. This will be a standalone concept to diversify and capitalise on our under-utilised assets.
Rashid Al Shamsi
General Manager Emarat
Rashid Al Shamsi studied for his Bachelor of Science in Civil Engineering and Building Science at the University of Southern California in the United States. He has been working in the petroleum industry for more than 20 years. He joined Emarat in 1983 as retail development engineer. Al Shamsi was aviation co-ordinator from 1987 to 1989 and became marketing manager in 1990 before becoming deputy general manager for sales and marketing in 1992.
Some 10 years later he was appointed as the general manager. During his time at the helm, Emarat has achieved a significant position in the UAE’s market. He oversaw the creation of Emojet, a joint venture with ExxonMobile for aviation fuelling at Dubai International Airport; Emoil, a joint venture with BP and Trafigura for storage of petroleum products in Jebel Ali Free Zone; and the launch of operations and retail outlets under Emarat Misr Petroleum Company in Egypt.