London to Karachi: Hascol’s long journey

CEO has overcome financial woes with ease

KARACHI:

The Iraqi invasion of Kuwait in 1990 created a crisis in Pakistan. Islamabad was buying all its petroleum products – petrol, diesel, jet fuel – from Kuwait and the sudden disruption in supplies meant everything could come to a standstill.

Up until then, Pakistan did business directly with governments. It had no experience of dealing in the open market. So it was Mumtaz Hasan Khan – Pakistan’s single oil trader of repute, who stepped in to fill the gap.



But the problem was credit.

“Mueen Afzal (former federal secretary) called me to say that the government could pay after 180 days. Normal credit terms were 30 days. So I gave a credit of $300 million to help the government,” recalls Mumtaz, who is now chairman and CEO of Hascol Petroleum Limited, Pakistan’s fastest growing petroleum marketer.

Past peaks

Mumtaz started his career with Burmah Shell in 1963. The contacts he made there would come in handy for the rest of his life.

In the mid-1970s, Air Marshal Nur Khan of PIA fame handpicked him as Managing Director of Pakistan Services Limited, which was government-owned at the time and ran Pearl Continental hotels. “He made an offer I couldn’t refuse,” he says.

After a four-year stint in the hospitality business, Mumtaz moved to London and started trading in oil under the company called Hascombe. His primary partner would be Royal Dutch Shell.

For the next few years, he bought and sold oil around the world, working closely with Bahrain, Qatar and Iran among other countries. His single largest transaction involved selling 2 million barrels of Iranian oil to Shell France.



He also continued to do business with Pakistan – at times meeting all its demand as it happened in February 1992 when he arranged all the eight gasoline shipments for the month.

That also meant earning commission of millions of dollars. “Of course I made a lot of money. Nobody does business for charity.”

The good bankers

It is no coincidence that his first loan for oil business came from the Bank of Credit and Commerce International (BCCI), which was run by legendary Pakistani Agha Hasan Abedi.

But here again, Mumtaz owes much of his success to Shell. Its name was enough to convince bankers. “I could go to banks and tell them that Shell is the buyer and they would finance me.”

Trade finance, he says, is something many banks even in the west didn’t understand. “It’s easier to deal with Swiss and French banks than the English. I remember how Barclays was reluctant to finance me although they knew I was supplying to Shell.”

Many years later, after he had set up Hascol as a petroleum marketing company in 2005, he would run into a similar problem. And this time he couldn’t use Shell’s name.

Help came in the shape of Hussain Lawai, the seasoned banker who runs Summit Bank. “That’s the bank that helped us grow.”

More to the growth

Hascol’s growth has been phenomenal. Its net revenue grew from just Rs9 billion in 2009 to over Rs84 billion in 2014.

Mumtaz says that’s because three major players – PSO, Shell and Chevron – were not expanding when demand was going up.

“CNG shortages have started to emerge and gasoline demand picked up. So the market was there. We just needed the money.”

But on the other hand, industry people credit Saleem Butt, the Chief Operating Officer for most of this growth. “He is the kind of guy who knows how to make money from money,” said a former colleague.

Butt joined Hascol in 2009 and the company started to gain market share from the very next year.

Officials say marketing companies including Hascol manipulate Inland Freight Equalisation Margin (IFEM), a cost component built in retail price of petroleum products to keep prices same throughout the country.

Companies show transporting petrol to Punjab but sell it to dealers at a discount at Daulatpur Depot in Sindh, using cost saving from IFEM to claw market from competitors.

Mumtaz denies that. “We actually want government to deregulate transportation cost. In 1990s the highest selling retail outlet was in Parachinar, although there were just ten cars in the city. That is called dumping.”

The company, he says, offers discount to ‘jobbers’ who buy products in bulk and sell in agricultural sector or to dealers who can’t offered to pay cash. “Even PSO and Shell offer discounts, there is nothing wrong in it.”

Inevitable transition

Hascol went public last year. “We listed for better corporate governance,” said Mumtaz, 74, the single largest shareholder.

“But more so we wanted banks to become fully aware of our strength. It has worked and now we have NBP, MCB and Habib Metro as our banks.”

None of his family members are part of the company. The recent announcement that world’s largest commodity trader Vitol wants to buy stake in Hascol fanned rumours that Mumtaz is looking for an exit.



“As long as I am healthy I will continue to work. This is my baby, I set it up,” he said. “Even if God calls me to the next world, the company would be well managed.”

And the one person he mentions in the same breath is Saleem Butt.

The writer is a staff correspondent

Published in The Express Tribune, November 8^th, 2015.

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