Pakistan State Oil may already be the largest corporation in the country based on revenues, but its new managing director is certainly not content with the state-owned enterprise being just an oil marketing and distribution company operating in the least-profitable segment of the fuel supply chain. According to managing director Naeem Yahya Mir, the company will actively be pursuing a vertical integration policy in the coming few years.
Not a man to mince his words, Mir says his objective is to turn PSO in the shortest period of time into a fully integrated energy company with operations in exploration, refining, shipping, marketing and distribution.
“Even multinational companies like Exxon and Shell are now less interested in distribution and retail because of low profit margins. Real profits are now in [oil] exploration,” Mir said during an interview with The Express Tribune.
PSO’s net profit margin for the most recent quarter were a measly 0.92%. This is compared to the much higher profit margins at the state-owned Oil and Gas Development Corporation – an exploration and development firm – which earned margins of 46.9%, despite being bloated with an unnecessarily large workforce.
Referring to Petro China, Petronas of Malaysia, Petrobras of Brazil and Indian Oil Corporation (IOC), Mir said state-owned oil companies “rule the world” because most of them had vertically integrated operations.
Mir said he had already held meetings with the heads of two oil refineries in the past one month to realise his objective of enhanced upstream integration. PSO had been in talks with Pakistan Refinery to acquire a majority stake in that company, but ultimately decided that the deal was not feasible.
“By looking at a refinery I can tell you what exactly needs to be done to turn it around,” Mir said, referring to his 21 years of experience as a marketing and refining expert in international energy companies.
He said he was willing to invest even in relatively small exploration companies that were drilling for oil anywhere in Pakistan. “My vision is to make PSO the country’s best company in two years, the region’s best company in four years, and finally, one of the Fortune 500 oil companies in next six years.” Besides exploration and refining segments, Mir is also enthusiastic about expanding into the crude oil shipping business to increase the company’s profit margin per barrel of oil.
Mir said all power plants in Pakistan burned intermediate fuel oil with a maximum viscosity of 180 centistokes. “That’s too expensive to use. I’m now trying to convince power stations to burn intermediate fuel oil with a maximum viscosity of 380 centistokes, which is far cheaper. It’s going to reduce the overall energy cost to a great extent.”
As the biggest player in Pakistan’s energy sector, PSO is probably the worst hit by circular debt with receivables amounting to Rs161 billion. Mir said the government was trying to solve the circular debt issue, adding its early resolution was vital for PSO to achieve its long-term goals.
Team building
Mir seemed clearly perturbed about the tangled web of bureaucracy at the state-owned oil company. Making little effort to conceal his disdain for the ‘committee culture’ prevalent at PSO, he said he planned to empower general managers to take quick decisions on the spot. “I’m going to reduce the number of committees drastically, and give more powers to the GMs [general managers].”
He said he was changing the performance appraisal criterion, turning it from individual-oriented to a team-orientated evaluation system. “80% of one’s appraisal will now be based on team performance.”
Mir has a master’s degree from UK’s Heriot-Watt University and a bachelor’s degree in chemical engineering from the University of the Punjab.
Published in The Express Tribune, March 3rd, 2012.
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Heriot-Watt is an excellent school. Good luck to Mr Mir - he seems to know what he is talking about and hopefully will encourage a meritocracy. Watch out for the politicians and the vested interest groups (aka mafias).
A good and optimistics approach by Mir but i would be interested in asking him whether the highly political intervention in PSO would let him acheive the target.
Yes Mir is right in assessing the buereacratic culutre in PSO, and this problem is faced all the world biggest companies like PSO unless they transform their process with the help of Process Reengineering techinques introdcued by Michael Hammer in 1990.
Finally someone is talking sense. I hope he delivers but given the beurocratic norms in the country it would be an uphill task for Mir to reform PSO. In my opinion all SOEs need to be brought under the control of a public listed holding company which should have the authority to appoint competent heads at all SOE's. The government should only focus on reaping profits by having a share in the Holding Company. This would make revenue generation more sustainable.