The times they are a-changin’: PSO plans major operational overhaul for the future

Company’s plans include entering refining, shipping and coal businesses.


In a surprising strategic shift, the management wants to place PSO as a major coal supplier over the next few years. ILLUSTRATION: JAMAL KHURSHID

KARACHI:


The Pakistan State Oil (PSO) CEO’s crown sits heavy on the bearer. The men who have sat on the top of Pakistan’s largest oil marketing company have been called everything from tyrants to self-indulging opportunists.


Some just silently took the incessant battering of their reputation, while others were forced to resign. All of them were subjected to constant political pressure whenever they tried to break the status quo. No wonder, then, that one of the former managing directors got diabetes while holding that office.

Merely the sheer size of this state-owned giant, which has annual revenues of over Rs1 trillion, makes it a subject of interest for shareholders, dealers, middlemen, transporters, politicians, competitors and suppliers.

These days, the incumbent CEO, Naeem Yahya Mir, finds himself at the receiving end of constant criticism. He wants to transform PSO into a vertically-integrated energy company, which currently only markets petroleum products, but some of his plans are facing strong resistance.

“We have to seriously think about securing our own fuel supplies,” he confided to The Express Tribune in a recent interview. “This would mean going right up the supply chain and into drilling for oil in our own country.”

Search for hydrocarbons

Petroleum producers make their profits in the supply chain, while the rest is siphoned off by refiners, shippers and transporters. “At the end of the chain, we as a marketing company have a fixed margin on sales. For a company the size of PSO, this business model is not very attractive. It’s too vulnerable to the volatility of petroleum prices.”

Pakistan has a relatively good track record in prospecting for new oil and gas reserves. For every three wells drilled, a gas or oil reserve is discovered in at least one of them. “[And still] our country remains one of the least explored. So, why shouldn’t we enter this side of energy business?” Mir asks.

“By 2016, we have to become a regional player. Look around and you will see that some of the largest oil firms are owned by governments, like in the case of China and Malaysia. So it’s doable.”

Coal is still the future

In a surprising strategic shift, the management wants to place PSO as a major coal supplier over the next few years. It has already signed a Memorandum of Understanding with Engro Energy to see how work on the Thar coal project can proceed.

“There is so much talk about converting thermal power plants to coal from oil that we need to look at our future seriously. If that happens, we take the biggest hit,” he said, referring to PSO’s predominant position in the oil marketing industry.

Up till March 2013 this fiscal year, PSO has been driving almost 51% of its liquid sales from furnace oil, which it feeds to power plants across the country.

It therefore makes sense for PSO to start exploring opportunities right away. “Some people are arguing that this isn’t our core business, but they have no vision. They are not seeing what lies ahead of us,” he said.

Refinery

Under the tenure of former managing director Irfan Qureshi, the company tried to increase its shareholding and straight out acquire Pakistan Refinery Limited in a bid to secure product supply and spread operating costs. The proposal never worked out.

Now, Mir plans to set up a $750 million, 40,000 barrels per day refinery in Khyber-Pakhtunkhwa as a way to drive out a horde of competitors whose marketing operations are backed by different refineries. But sceptics say a unit with such a small capacity doesn’t make sense, because refineries make money operating on economies of scale.

“We have analysed oil production data from the Kohat region and this is how much will be produced from that region. That much refining capacity will be enough to meet demand in the frontier region, which is our target,” Mir explained.

Under the petroleum policy, a refinery closest to producing fields receives crude oil on priority. “We’ll be nearer to where the Oil and Gas Development Company and MOL are already working.”

Off to the seas

Mir believes PSO should have entered the shipping business years ago. He staunchly defends a proposal to buy two tankers under a joint venture with the Pakistan National Shipping Corporation.

“PSO imports around 10 million tons of petroleum products. Why shouldn’t I be the one fixing (transportation) rates? Why should I pay for inefficient ships, which suppliers often employ in our case?”

Published in The Express Tribune, June 28th, 2013.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.

COMMENTS (6)

Pakistani | 10 years ago | Reply

Mir is the big actor, he is working as PSO MD last two year with no results....... Funny CEO of largest oil marketing company of Pakistan

sohail Malik | 10 years ago | Reply

Mir Sahib can you please elaborate and enlighten this, as per your estimation, gullible nation what have you done in the last 2 years since you have been at the helm of affairs, other then making lofty statements, could you please tell as just ONE of your projects that has taken off. I really believe that just giving a VISION is not enough, in fact its in your period that this crown of the nation has defaulted. So please come out of these pipe dreams and do something practical.

VIEW MORE COMMENTS
Replying to X

Comments are moderated and generally will be posted if they are on-topic and not abusive.

For more information, please see our Comments FAQ