Motorists in the UAE may soon find themselves lining up to buy petrol. Purchasing refined petrol at Dh 6.75 per gallon but allowed by the authorities to sell at only Dh 4.75 per gallon, the country’s gasoline retailers incur a substantial loss estimated at about Dh 4.1 million daily, especially now that world crude prices have reached more than US$ 50 per barrel.
EPCCO/ENOC, with more than 160 service stations in Dubai and the Northern Emirates, loses upwards of Dh 1.4 million a day.
An industry spokesman said that a business incurring losses of that magnitude is clearly not sustainable in the long term, unless the companies have either access to subsidised products or retail prices are increased by as much as Dh 2 per gallon.
The source said that while petrol retail pump price is set by the Federal Government, retailers like EPPCO that don’t have access to crude oil of their own need to buy product at high international market prices.
“Over the last 5 years, EPPCO lost a total of about Dh 450 million because of the high product acquisition cost,” said an EPPCO source.
Unlike other GCC and Asian countries, the UAE Government does not subsidise the retail marketing companies to sell petrol at the regulated prices. In effect, the distribution companies themselves subsidise UAE motorists, who enjoy some of the lowest petrol prices in the world.
With the serious negative impact on cash flows, the retailers have difficulty replenishing stocks and industry insiders fear that this could lead to some service stations running dry -- or petrol sales shutting down completely.
“The retail companies have invested their pre-2000 earnings in new stations in developing areas in all Emirates -- particularly in rapidly expanding Dubai,” the source said. “Even when the companies started to lose money, the investments in building bigger and better service stations continued in line with the development of the country, with the hope that international crude prices will turn around to enable them to again make a margin.”
He added that ENOC alone built 7 stations under the ENOC brand over the last 12 months but these have been “mothballed” with only security guards in attendance as to open them would mean increasing petrol sales and incurring even greater losses.
“We have exhausted banking facilities and the banks will no longer finance our petrol purchases,” the EPPCO spokesman said. “For the first time in our corporate history, our balance sheet is negative and we have no funds to buy petrol. The situation is doubly ironic because if we do buy petrol to sell, we will only lose more money.”
ENOC admitted that by the end of this month – because of factors beyond its control – its entire EPPCO/ENOC network will most probably stop selling petrol. “Some of our bigger service stations might run dry before that,” it added.
However, ENOC will continue selling diesel and will keep on running its EPPCO/ENOC convenience stores, car wash, quick oil change facilities and food outlets as normal and hope that a quick solution can be found to the petrol retailing problem.
Industry sources advised that the UAE Government is aware of the financial burden the retail companies are faced with. However, to date, no decision has been made on whether some sort of Government subsidy scheme will be put in place to help the petrol retail companies to continue to trade and supply fuel to the public or allow a substantial increase in petrol retail pump prices. (menareport.com)
© 2004 Mena Report (www.menareport.com)
