Fok|sfon Fnergy Conference 2011

ReusonubIe OMC & Refining Sector

Murgins Imperutive for Investment
in Energy Sector
Mondoy ApriI IIfh, Z0II
Fok|sfon O|| Morkef Overv|ew
- Fok|ston |s on energy de||c|t country
- Fetro|eum Froduct demond |n 200-10 wos 20.1 m||||on M. Ions
Pakistan Energy Conference 2011
April 11, 2011 | Slide 2
mported
crude
34%
mported
refined
product
52%
Local crude
14%
10.4 million M. Tons
6.88 million M. Tons
2.88 million M. Tons
Due Ic prcgre::ive pc|icie: cccpIec c ceccce cgc,
Ihe ci| :ecIcr in Fcki:Icn cIIcinec inIerncIicnc|
uc|iIy :ervice :Icnccrc: cnc i: criving Ihe ccunIry:
eccncmy Ly:
O|| Morkef|ng 5ecfor sfofemenf
W Mcking ci| prccucI: cvci|cL|e ccrc:: Ihe ccunIry
W En:uring :cfeIy in hcnc|ing ccngercu: ci| prccucI:
W /::uring uc|iIy cnc ucnIiIy cf ci| prccucI:
W Enhcncing Ihe imcge cf Ihe ccunIry {uc|iIy reIci|
:IcIicn:)
W lnIrccucing wcr|c c|c:: :Icnccrc: cnc
Iechnc|cgicc| inncvcIicn:
Pakistan Energy Conference 2011
April 11, 2011 | Slide 3
Ouf |ook of FOL Demond |n Fok|sfon
Demcnc cf FCL prccucI: in Fcki:Icn i: ExpecIec Ic grcw Ly 37
per cnnum {FMG~7, HSD~27, FC~47)
Such increc:e wcu|c reuire ccciIicnc| inve:ImenI in
infrc:IrucIure
/ fcrcec recucIicn in ci| ccn:umpIicn cue Ic incceucIe
infrc:IrucIure wi|| pcIenIic||y :|cwccwn eccncmic grcwIh
We hcve c|reccy experiencec grcwing Gc: cuIcge: curing Ihe
winIer mcnIh:, Ihe:e cre expecIec Ic increc:e in ccming yecr:,
IhereLy impccIing incu:Iric| cuIpuI
ShcrIcge cf Gc: wi|| cn|y Le ccmpen:cIec Ihrcugh ci|
Iherefcre inve:ImenI in Iime|y ceve|cpmenI cf Ihe ci| :ecIcr
infrc:IrucIure i: exIreme|y impcrIcnI Ic :uppcrI GDF grcwIh
Pakistan Energy Conference 2011
April 11, 2011 | Slide 4
reos fhof requ|re Mojor lnvesfmenfs
Pakistan Energy Conference 2011
April 11, 2011 | Slide 5
#efinerie:
lncrec:ing :Icrcge ccpcciIie:
lncrec:e :hip hcnc|ing ccpcciIy cI pcrI
lncrec:e in ccpcciIy fcr ccnver:icn cf NcphIhc inIc
FMG
Fipe|ine Ic |ink Kecmcri FcrI wiIh FcrI Cc:im
#efinerie: upgrcccIicn Ic prccuce prccucI: cf Eurc ll
:Icnccrc
Deve|cpmenI cf LFG /uIcgc: :IcIicn
Morg|n of ref|ner|es
Pakistan Energy Conference 2011
April 11, 2011 | Slide 6
- Ex-#efinery price cf FCL prccucI: cre ceIerminec cn Ihe Lc:i:
cf impcrI pcriIy price {lFFS)
- Iherefcre refinery mcrgin in Fcki:Icn cre cepenccnI cn
cifference cf cc:I cnc lFF
- GcvernmenI hc: given Ihe prcIecIicn Ic |ccc| refinerie: in Ihe fcrm cf
Deemec cuIy- ut
requenf chonges |n ref|nery pr|ce formu|o
Pakistan Energy Conference 2011
April 11, 2011 | Slide 7
- #emcvc| /#ecucIicn cf ceemec cuIy prcIecIicn
- HypcIheIicc| fcrmu|c cf Ex-refinery Frice cf FMG {price c||cwec Ic ex-
refinery i: |cwer Ihcn inIerncIicnc| mcrkeI)
- #emcvc| cf incicenIc| chcrge: frcm lmpcrI FcriIy Frice {lFF) fcrmu|c in
Dec 2010
- Ex-refinery price cf SKC & LDC c: cnncuncec Ly CG#/ i: even |cwer
Ihcn lFF {ShifIing Ihe Lurcen frcm GcF Ic #efinerie:)
Morg|ns of OMCs
CMC: were c||cwec in 2002 c mcrgin cf
3.57 cf ccn:umer price
Since 200, GcvI hc: Iweckec CMC mcrgin
7 Iime:
Such cchcc chcnge: in mcrgin: hcve
:hcIIerec Ihe ccnficence cf exi:Iing cnc
fuIure inve:Icr:
Pakistan Energy Conference 2011
April 11, 2011 | Slide 8
mendmenf |n OMC Morg|ns
ecr 2002 - CMC were c||cwec c mcrgin cf 3.57 cf ccn:umer price
ecr 200 - Ihe mcrgin wc: fixec @ 3.57 cf price Lefcre GSI
ecr 200, Ihe mcrgin wc: fixec @ 3.57 cf price Lefcre FeIrc|eum |evy &
Sc|e: Icx
Ju|y 2008 -Ihe mcrgin wc: frczen in #upee Ierm cI Ihe Ihen prevci|ing
|eve|
/ug 2008 - Ihe mcrgin wc: recucec Ic cnc ccppec @ /G |ighI
US$100/88L
FeL 200 - Fixec mcrgin cf #:. 1.35/|Ir in HSD cnc cn re:I cf Ihe prccucI 47
cf price exc|ucing GSI & FDL {lI wc: fixec fcr Ihe ci| price rcnge cf US$45-
$80) - CurrenI price i: in Ihe rcnge cf US$110-US$120/88L
Dec 2010 - Mcrgin cn c|| prccucI: were fixec in rupee Ierm:
Pakistan Energy Conference 2011
April 11, 2011 | Slide 9
Morg|ns* h|sfory - Mofor goso||ne
Margins plotted as % of retail price
Pakistan Energy Conference 2011
April 11, 2011 | Slide 10
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
19-
Aug-
93
03-
Nov-
93
13-
Feb-
95
15-
Dec-
99
14-
Mar-
01
01-
Jul-02
16-
Mar-
06
25-
Aug-
07
01-
Apr-
08
21-
Jul-08
01-
Aug-
08
01-
Oct-
08
01-
Jan-
09
01-
Jan-
10
01-
Dec-
10
01-
Apr-
11
Shift from
fixed margin
regime to %
basis
3.5% margins
on end selling
price till March
15, 2006
GST & PDL
exclusion
from margin
calculation
Current decline
in oil prices
effecting
profitability
% was
increased from
3.5% to 4%
Margin is fixed
in Rs. per liter
Morg|ns* h|sfory - D|ese|
Margins plotted as % of retail price
Pakistan Energy Conference 2011
April 11, 2011 | Slide 11
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
19-
Aug-
93
03-
Nov-
93
13-
Feb-
95
15-
Dec-
99
14-
Mar-01
01-Jul-
02
16-
Mar-06
25-
Aug-
07
01-
Apr-08
21-Jul-
08
01-
Aug-
08
01-
Oct-08
01-
Jan-09
01-
Jan-10
01-
Dec-
10
01-
Apr-11
Shift from
fixed margin
regime to %
basis
3.5% margins
on selling price
till March 15,
2006
GST
exclusion
from margin
calculation
Decline in oil
prices effected
profitability
Margins were
fixed in rupee
per liter
Morg|ns cover OMCs |nvesfmenfs ond expenses
op|to| expend|ture on storoges, p|pe||nes ond reto|| out|ets
Investment |n |nventory
k|s|ng cost o| do|ng bus|ness:
Interest rotes, KIk: 14%
ksJbS$ por|ty: ks 8+
E|ectr|c|ty, gos, |ue|
Insuronce cost
Irove||ng
Humon kesource
Lond |eoses
Advert|sement
kepo|rs & Mo|ntenonce
Pakistan Energy Conference 2011
April 11, 2011 | Slide 12
Consumer Fr|ce lndex
Pakistan Energy Conference 2011
April 11, 2011 | Slide 13
Source: www.tradingeconomics.com
L|nk|ng of OMC morg|ns w|fh pr|ce hos broughf |n
|nvesfmenf |n fhe counfry
Shift of fixed
margin regime to
% basis - an
impetus for
growth in
investment
0
1
2
3
4
5
1
9
8
5
1
9
8
6
1
9
8
7
1
9
8
8
1
9
8
9
1
9
9
0
1
9
9
1
1
9
9
2
1
9
9
3
1
9
9
4
1
9
9
5
/
6

(
1
8
m
t
h
)
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7

n
n
u
a
I

C
a
p
e
x

R
s

b
i
I
I
i
o
n
0
5
10
15
20
25
30
35
40
C
u
m
u
I
a
t
i
v
e

C
a
p
e
x

R
s

b
i
I
I
i
o
n
Total Capex Cumulative Capex WOPP
sia
PetroIeum
and ZOT
Modernization of RetaiI
OutIets by Chevron & SheII
Introduction of New Vision
RetaiI OutIets by PSO
Pakistan Energy Conference 2011
April 11, 2011 | Slide 14
This sample calculation is based on the prices effective April 1, 2011
GoP revenues are linked to Oil prices e.g. Custom Duty, PDL, GST and ncome tax
A reduction in OMC margins will not have a significant impact on the consumer,
Reduction in margin is also a cause of increasing the tendency of malpractices in
the industry
Copp|ng J keduc|ng morg|n d|d nof hove ony mofer|o| |mpocf on fhe
cusfomer pr|ce buf w||| be defr|menfo| fo |nvesfmenf
PMG HSD
Cost of product 59.35 73.80
FEM 5.54 2.30
OMC Margins 1.50 1.35
Dealers Commission 1.87 1.50
Petroleum Levy 3.16 0.44
Sales Tax 12.14 13.50
Net Taxes/(Subsidy) 15.30 13.94
SeIIing Price 83.56 92.89
OMC Margins %age 1.80% 1.45%
Pakistan Energy Conference 2011
April 11, 2011 | Slide 15
ef Morg|n compor|son - d|fferenf |ndusfr|o| secfors
Pakistan Energy Conference 2011
April 11, 2011 | Slide 16
0.07
10.07
20.07
30.07
40.07
50.07
0.07
70.07
NeI Mcrgin Grc:: Mcrgin
Source: Elixir securities
Year : 2010
kecommendof|on
Pakistan Energy Conference 2011
April 11, 2011 | Slide 17
GcF :hcu|c cnncunce c |cng Ierm cnc :u:IcincL|e
pc|icy cn #efinery Frice cnc CMC Mcrgin
Give c |egc| prcIecIicn Ic inve:Icr: cgcin:I:
/chcc chcnge: in GcvernmenI Fc|icie:
Chcnge: in IcxcIicn :IrucIure
Unfcir Lurcen cn ci| :ecIcr in Ihe fcrm cf Frice
DifferenIic| C|cim: cnc Circu|cr DeLI
Frcvicing c |eve| p|cying fie|c Ic c|| p|cyer: cf incu:Iry
Fu||y ceregu|cIing Ihe peIrc|eum :ecIcr in Ihe |cnger
Ierm