BR Research conducted an interview with Kalim A Siddiqui, President Petroleum Marketing Business of Byco Pakistan. Siddiqui touched upon various topics ranging from Byco's tremendous performance to burning industry issues and the company's future plans. He sees the company to be the third largest in the industry in two to three years.
Following are edited transcripts of the interview:
BRR: How successful has been Byco's journey in the short period so far?
Kalim Siddiqui: We have achieved tremendous progress in a year and a half. We launched a massive branding campaign which was the largest branding exercise by any company in Pakistan. It was undoubtedly a challenging job but we managed it exceedingly well.
Our performance can be gauged from the fact that we were in a very passive role last year and were standing at 10th position out of 12 oil marketing companies, which was quite insignificant. But in a short period of 15 months, our aggressive campaign and hard work have earned us the sixth spot. There were a few months in the mean time, where we even surpassed some of the bigger players. We will hopefully catch up with the mid-size players soon.
We had 32 petrol stations when we started Byco, now we run more than 160 petrol stations across the country, which is a great feat in just one year's time. We are growing steadily, we have started supplying fuel to a few power stations and more are in the pipeline. We have also marketed LPG cylinders and are now working on auto gas business, we plan to build auto gas terminals at our stations.
We are also expanding our lubricants segment, where we already exist in large packaging and we are working on launching lubricant in smaller packaging as well, which will cater to a larger market.
Our relentless hard work has helped us gain market share, whereas other companies have all been losing market share. We have a lot of products in the pipeline and when they materialise, we will definitely gain market share.
Moreover, we are only the fourth company in the industry to have established a terminal at the Kemari port, we have refurbished it and are very close to operations once the government approval comes. It will hopefully start working in a few weeks.
Furthermore, we have drastically improved our supply chain and are transporting our refinery product through pipeline which no other company has ever done. And we are supplying products from wherever the big oil marketing companies are operating - so we have increased our presence in a sense.
We have already left behind the smaller players and now we are eying the fourth and fifth sport, and I am hopeful that if we continue to work hard we will definitely reach there in a few months. And this is all organic growth that I am talking about.
BRR: Do you see Byco's market share growing into double digits in the near to medium term?
KS: I think that will take some time, it cannot happen in near or medium term. On aggregate basis we have 2.7-2.8 percent share, which at times has reached 3.2-3.3 percent. But tripling that is not practical in the near future given our size. I think we will touch the 6-7 percent mark if we continue to work hard and penetrate deeper.
BRR: How do you plan to tap the black oil market given its vast need due to the thermal dependent power generation?
KS: We are quite aggressive in bunkering at presently we are either number 1 or number 2 in bunkering. Moreover, we have started supplying furnace oil to the power companies, a few are in the pipeline as well. I am hopeful that we will be supplying furnace oil in huge quantities in a few months.
BRR: What advantage does Byco have over its peers by virtue of being a fully integrated oil company?
KS: Our backwards integration does bring us at an advantageous position to our peers. The smaller companies have to have an integrated set-up to survive and sustain. You take the example of other smaller marketing companies who could not survive as their supply chain was not strong.
Another advantage of integration is that we can develop niche products at our own facilities, which others cannot. We launched special fuel for bunker, which was the first time in Pakistan and that only became possible because of our integrated set-up.
BRR: What are Byco's plans for the lubricants segment as it is a relatively higher margin business?
KS: We already have a Byco branded lubricant product line in large packaging in the market. We are now working on the small packing, which will soon be in the market.
BRR: How much will the recent change in OMCs and refineries pricing formula hamper the margins and profitability?
KS: It will have a significant negative impact for sure. Unfortunately, our policymaking has been inconsistent especially for the OMCs. It does not allow companies to plan for the long term. That is why there has been negligible investment in this sector because of chop and change in policy every now and then.
We already have a high borrowing cost in Pakistan, then there is circular debt and the cost of doing business in Pakistan - all these things combine to make it difficult for the sector to stay afloat. So our margins in real terms are in the negative zone.
If you want this industry to grow and prosper, you have to show consistence in policies and take the stakeholders on board on major decisions.
BRR: What should be the ideal formula in your view that suits the industry best?
KS: The ideal way to go is deregulating the industry. A fair return should be allowed for the companies to cover the capital investment and operating costs. The companies invest to make profits - that is a simple rationale behind every other firm that is in the business. The environment should be conducive enough to keep the industry on its feet.
More deregulation will lead to increased competition, better products and fair pricing, which will be a win-win situation for everyone.
BRR: How will the refineries cope with this situation of unfavourable pricing?
KS: All refineries are in a massive liquidity crunch because of the circular debt. There is a grave concern that if the situation continues, we might see refineries winding up their business because it is increasingly becoming unviable to operate.
The last I checked the figures, refineries only produced 45 percent of the country's demand, the rest was imported. My question is why don't they support an industry which can actually produce the required quantity and why do they instead opt for importing huge quantities and spend billions of dollars of foreign exchange.
BRR: What is the possible solution of the menace of circular debt?
KS: The problem is that we do not have political will. They should privatise the power sector in the first phase of reforms. Government itself is the biggest defaulter, how can we expect reforms without political will.
We are practically choked; we are running on borrowed money. This cannot go on for long, it hampers our operations and growth. Our refinery sector is operating at nearly 50 percent, which is a shame.
BRR: How is your LPG business growing?
KS: I see the future of CNG very bleak and it may die very soon. That is why the future in my view belongs to the LPG. We have been using natural gas criminally for transport and heating purposes in the domestic sector. This is again a policy flaw, we never prioritised our gas usage. The LPG business therefore has a good future in Pakistan.
BRR: What is the progress on desulphurization of the refineries? Has there been any significant investment made?
KS: Who will invest in such an environment where the refining margins are in the red zone. We have hydro-skimming refineries in Pakistan and should be treated likewise. Few refineries did the feasibility, but could not move on because of constant changes in the policies and the reserves wiped off in no time.
BRR: Does Byco have any acquisitions plans in the near future?
KS: I will not go into much detail, but acquisition is very much a part of our strategy. We have a few targets in mind to go beyond the organic growth has its limitations.
BRR: Where do you see Byco in the next two to three years?
KS: I see Byco as the third biggest company in the oil business in three years time. Yes, it is a tall statement but we have a vision, motivation and the right people to achieve the target. Our objective is not to be just big, but we want to be big with quality products and quality services.
-- President - Byco Petroleum Pakistan Limited
Kalim A. Siddiqui is President of Petroleum Marketing Business in Byco Petroleum Pakistan Limited (BPPL). Mr Siddiqui has taken this responsibility from 1st April 2009 to lead Byco's Petroleum Marketing Business initiatives to become a dominant market player.
Siddiqui, holding a Bachelor in Chemical Engineering and a Masters in Chemistry, has broad-based, global experience in business development, system re-engineering and streamlining processes, managing supply chain, marketing and sales, overall operations management in the oil industry for over 30 years holding various senior management positions. He was in PSO before joining Byco Group, where he served for nearly eight years in different management roles. As the Managing Director, being his last position in the company, he ensured continuity of supply chain to meet country's fuel needs for private and public sectors despite difficult economic conditions. In Nov' 2010, he has been appointed as member of BOI Board (Board of Investment) by the Government of Pakistan.
Siddiqui has served as Chairman Oil Companies Advisory Committee (OCAC) and has held directorships in various reputable companies, & professional and educational institutes including Pakistan Refinery Limited, Pak-Arab Pipeline Company, Asia Petroleum Limited, Agrimall, Pak-Grease Manufacturing Company Limited, Petroleum Institute of Pakistan, Pakistan Advertisers Society and Lahore University of Management Sciences. Before joining PSO, he served in Caltex (now Chevron) for 20 years locally as well as internationally.
His international assignments were located in the USA, Vietnam and Australia. In Caltex he has dealt with fuel & lube marketing, lube product development and production, LPG marketing, and product engineering activities. He also worked for three years in the UK with Howden Engineering Company, Burmah-Castrol Refinery, North West Water Authority and A.P.V Company before coming to Pakistan in 1980.