Pso Research Report

CONSUMER PREFERENCE SURVEY

“COMPARATIVE ANALYSIS OF

OIL MARKETING COMPANIES IN PAKISTAN, WITH SPECIAL

REFRENCE TO SERVICES PROVIDED BY PSO.”

Submitted By:

KASHAN PIRZADA

Submitted To:

Madam Farah Nawaz

Date of Submission:

19 th May, 2008

“METHODS IN BUSINESS RESEARCH”

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Methods & Business Research

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Table of Contents

Acknowledgement..................................................................................3Research Process……………………………………………………….4Executive Summary................................................................................5Observation.............................................................................................6Preliminary Data Collection....................................................................6History & Background of PSO, SHELL & Caltex..…………………….7Literature Survey.....................................................................................17Problem Definition..................................................................................33Identification of variables……………………………………………….33Development of Hypothesis....................................................................45Research Design......................................................................................37Questionnaire Analyses………………………………………………....38Analyses & Interpretation of Questionnaire……………………….…..41Work contribution Graph………………………………………………54Sample Questionnaire…………………………………………………...55Conclusion..............................................................................................58Recommendations...................................................................................58

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ACKNOWLEDGEMENT

First and foremost, we would like to think Almighty ALLAH for guiding us and helping us in every path of our life, even in the smaller material things like this report.

We are also thankful to our parents for their unconditional love and support in whatever we do.

A special mention goes out to all those people who gave us a part of their valuable time to fill up the questionnaires hence enabling us to conduct the research survey.

And last, but not the least, we would like to convey our sincerest thanks to our respected teacher, Madam Farah Nawaz, who approved our choice of topic and provided us with the necessary guidelines and requirements so as so help us with the progress and structure of our report. Working on this report has been a gratifying experience for all of us.

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EXECUTIVE SUMMARY

Pakistan is a country that is undergoing rapid economic growth, and investment in every major sector is on the rise. And the port city of Karachi has a huge role to play in this as well. With the growth in population, the man power has contributed to the economy as well, whether it is the common labor or the high-profile banker. Hence, more population meant more vehicles, be it the trucks used by the factory workers, or the luxurious cars owned by certified accountants.

Therefore, to cater to the growing needs and demands of these vehicle drivers, numerous petrol pumps of various fuel companies have sprung up in the city. But out of the various companies, three fuel giants stand out of the crowd, namely Pakistan State Oil (PSO), Shell and Caltex. With the rise in worldwide oil prices, these companies now compete over each other for providing ‘better customer services’. And this is what our research is based upon.

According to our estimates, people prefer PSO than Shell or Caltex. Hence, we selected this topic for our research to find out the accuracy of our estimation and at the same time to become aware ourselves and to make everyone aware of the company that manages to satisfy its customers completely.

The following research was carried out through distributing questionnaires to a sample of approximately 120 people from diverse backgrounds. Statistical tests of Hypothesis were applied and the result derived. We have also included our recommendations at the conclusion of the report.

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OBSERVATION

In Karachi we observed that in past five to ten years percentage of people who use vehicles has increased. There has also been a steady increase in the prices of petrol & diesel. The oil marketing sector mainly consist of three companies namely Pakistan State Oil Company, Shell Pakistan and Caltex Pakistan. PSO enjoys the largest market share followed by Shell and Caltex. In the changed market scenario profitability of these companies will be directly related to volume of sales. Therefore, all the companies are investing heavily to improve the quality of services being offered at their outlets.

PRELIMINARY DATA COLLECTIONPreliminary data is collected through:

Observations Surveys (Literature Surveys that include articles from books and over the internet) Interviews

Following three types of information is searched from above mentioned resources:

Background information of PSO, SHELL & CALTEX. Philosophy and guidelines. News articles related to these three companies and overall fuel industry. Performance of these fuel companies regarding customer services.

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Background Information of PSO:

Chronology of Events leading to the formation of: Pakistan State Oil Co. Ltd. (PSO) 01-01-1974 Federal Government takes over management of PNO (Pakistan

National Oil) and DPL (Dawood Petroleum Limited), renamed into POCL (Premier Oil Company Limited) under marketing of Petroleum Products ( Federal Control ) Act, 1974.

03-06-1974 Government incorporates "Petroleum Storage Development Corporation" PSDC.

23-08-1976 Name of PSDC changed to State Oil Company Limited (SOCL).

15-09-1976 Government purchases ESSO Undertakings, vests their control in SOCL.

30-12-1976 Government merges PNO and POCL into SOCL (State Oil

Company Limited) and names it as Pakistan State Oil Company Limited (PSO).

PSO VISION:

To excel in delivering value to customers as an innovative

and dynamic energy company that gets to the future first.

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PSO COMPANY PROFILE:

Pakistan State Oil (PSO) is the oil market leader in Pakistan enjoying over 82% share of Black Oil market and 61% share of White Oil market. It is engaged in import, storage, distribution and marketing of various POL products, including Mogas, HSD, Fuel Oil, Jet Fuel, Kerosene, LPG, CNG and petro-chemicals. This blue chip company, the winner of "Karachi Stock Exchange Top Companies Award" and a member of World Economic Forum, has been a popular topic of case studies in Pakistan and abroad based on its radical corporate turnaround over the last few years. Excellence in Customer Service:

PSO serves a wide range of customers throughout Pakistan, including retail, industrial, aviation, marine and government/defence sectors. Professionals at PSO strive for providing unmatched and diverse services to the customers in line with best international practices. PSO's state-of-the-art New Vision retail outlets are equipped with the most modern facilities, including auto car wash, electronic dispensing units, convenience stores, business centres, internet facilities and Easy Payment Centres for payment of utility and Citibank credit card bills. The concept of Quick Oil Lube Vans introduced by PSO, provides the lube change facilities at customers' doorsteps. About 21 Mobile Quality Testing Units ensure top of the line quality of products and services. As innovative customer service initiatives, PSO has launched Loyalty Card, Corporate Card, Fleet Card and Prepaid Card. These cards provide added convenience, flexibility and security to the customers while enabling them to earn redeemable loyalty points and avail attractive discounts for purchase of non-petroleum products at a large number of merchant outlets in various cities on use of Loyalty and Corporate Cards.

For efficient handling of customer complaints, queries and suggestions, PSO has developed Customer Service Centres at all its 14 divisional offices. Furbished with a toll free telephone number (0800-03000) and automated customer feedback registration system, these centres provide an efficient system of 24-hour customer care. An attractive and comprehensive. Total Quality Control:

PSO has been meeting the country's fuel needs by merging sound business sense with national obligation. In order to satisfy the customers' needs while ensuring the highest quality of products and services, PSO has introduced total quality management

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system in its operational activities. Consistent conformance to prescribed standards and specifications across the whole range of activities from receipt, storage, transportation and delivery of products is the cornerstone of PSO's quality management system. In addition to quality assurance in upkeep and maintenance of existing facilities, compliance with quality standards is ensured in construction of new facilities like recently developed state-of-the-art facilities for Aviation customers at Lahore Airport. Health, Safety and Environment:

Ensuring the health and safety of PSO employees, contractors, customers and members of public likely to be affected by the Company's operations is one of the basic corporate objectives, and as a priority it ranks equally with market share and profit. Accordingly, it is the Company's policy to perform work in the safest practicable manner, consistent with best industrial practices while adhering completely to the requirements of health and safety codes and practices. The Company's Health, Safety & Environment (HSE) Steering Committee monitors HSE compliance on regular basis while HSE Site Committees ensure that HSE Requirements are met at all operating locations, including Depots, Terminals, Plants, Retail Outlets and Airports. Use of relevant safety equipment at work is mandatory for employees. Regular HSE audit of facilities and HSE training of relevant staff is carried out and commissioning of new facilities is subject to HSE clearance. Adequate resources are made available to ensure the success of HSE policy. Corporate Social Responsibility:

PSO is highly committed to fulfillment of its corporate social responsibility and believes that the benefits of the Company's progress and financial gains must flow down to public at large upto the grassroots levels, particularly to the under-privileged and deprived sections of the populace irrespective of ethnicity, caste and creed. PSO has undertaken a wide range of initiatives to support several social, health and educational programs. Such initiatives include instituting gold medals, cash awards and scholarships for top students of leading professional educational institutes, providing computer training to students and other residents of Badin district in rural Sindh province through a well facilitated training institute established for this purpose, providing moral and financial support in form of donation on compassionate basis to charitable institutions, installing direction signs and traffic signals at major streets and thoroughfares, supporting Citizen Police Liaison Committee and sponsoring road awareness programs like Karavan Karachi for the children. Reform of Corporate Governance:

PSO's comprehensive and far-reaching corporate renewal programme resulting in

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dramatic corporate transformation has been widely appreciated at various national and international forums, by world's leading consulting and financial advisory firms and by leading educational institutions. This programme covers the revamping of the organizational architecture, rationalization of staff, employee empowerment and development, and efficiency and transparency in decision-making through Cross-Functional Teams.

PSO's corporate structure has evolved into a matrix, which has divided the Company's major operations into independent activities supported by the financial, legal, information and other services. These activities operate in an autonomous and collegial manner in the form of Strategic Business Units based on the clear and transparent allocation of responsibility and accountability. This structural change has been reinforced and related checks and balances have been established by putting in place several corporate monitoring and control systems.

One of the top priority areas of PSO's corporate reform is Human Resource Development. The Company has undertaken several initiatives to ensure induction and training of professionals with the objective of ensuring high level of professionalism and productivity at all levels of its employees. Through computer training, various in-house courses, sponsorship of staff for studies at professional institutions and seminars, the Company is providing its employees the opportunities for continuous development and learning.

Effective implementation of corporate reform and business development strategies in line with best international practices has enabled PSO to maintain its market leadership position in a highly competitive business environment

PSO MISSION STATEMENT & VALUES

We are committed to leadership in energy market through competitive advantage in providing the highest quality petroleum products and services to our customers, based on :

Professionally trained, high quality, motivated workforce, working as a team in an environment, which recognizes and rewards performance, innovation and creativity, and provides for personal growth and development

Lowest cost operations and assured access to long-term and cost effective supply sourcesSustained growth in earnings in real termsHighly ethical, safe environment friendly and socially responsible business practices

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PSO VALUES

Excellence

We believe that excellence in our core activities emerges from a passion for satisfying our customers' needs in terms of total quality management. Our foremost goal is to retain our corporate leadership.

$ Cohesiveness

We endeavor to achieve higher collective and individual goals through team. This is inculcated in the organization through effective communication.

Respect

We are an Equal Opportunity Employer attracting and recruiting the finest people from around the country. We value contribution of individuals and teams. Individual contributions are recognized through our reward and recognition program.

Integrity

We uphold our values and Business Ethics principles in every action and decision. Professional and personal honesty, dedication and commitment are the landmarks of our success. Open and transparent business practices are based on ethical values and respect for employees, communities and the environment.

Innovation

We are committed to continuous improvement, both in New Product and Processes as well as those existing already. We encourage Creative Ideas from all stakeholders.

Corporate Responsibility

We promote Health, Safety and Environment culture both internally and externally. We emphasize on Community Development and aspire to make society a better place to live in.

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SHELL HISTORY:

The market for oil remained confined to lighting and lubricants until, in 1886, the internal combustion engine and demand for gasoline arrived with Karl Benz and the first Mercedes. By now the Samuel business had passed to Marcus Samuel junior and his brother Sam. They exported British machinery, textiles and tools to newly industrialising Japan and the Far East and on return imported rice, silk, china and copperware to the Middle East and Europe. In London, they traded in commodities such as sugar, flour and wheat worldwide.It was during a trip to Japan that Marcus became interested in the oil exporting business then based in Baku, Russia. The Rothschilds had invested heavily in the 1880s in rail and tunnels to overcome the transport difficulties of getting oil from this landlocked base to the Black Sea and from there to overseas markets. Shipping still posed a problem as the oil was carried in barrels, which could leak and took up much space in the ship’s hold.Marcus and Sam commissioned a fleet of steamers to carry oil in bulk, using for the first time the Suez Canal. They also set up bulk oil storage at ports in the Far East and contracted with Bnito, a Russian group of producers controlled by the Rothschilds, for the long-term supply of kerosene. Their strategy was high-risk: if news of their operations got out they would be squeezed out by Rockefeller’s dominant Standard Oil. With the maiden voyage of the first bulk tanker, the “Murex”, through the Suez Canal in 1892 the Samuels had achieved a revolution in oil transportation. Bulk transport substantially cut the cost of oil by enormously increasing the volume that could be carried. The Samuel brothers initially called their company The Tank Syndicate but in 1897 renamed it the Shell Transport and Trading Company.Petroleum was also being produced in the East Indies, a Dutch colony, and in 1890 a company had been formed to develop an oilfield in Sumatra. This was the origins of what was to become the Royal Dutch Petroleum Company. Under the management of J.B. August Kessler, they built a pipeline and refinery at Pankalan Brandan. Kessler was joined in 1896 by a dynamic young marketing director, Henry Deterding, who was to become a dominant figure in the company until the outbreak of the Second World War. Faced with the competition from the Samuels’ low bulk transport costs, Royal Dutch began the construction of tankers and bulk storage installations and set up its own sales organisation.By the turn of the century, Marcus Samuel had become the model of an Edwardian plutocrat with a grand house in London and a country mansion, which had been bought lock, stock and barrel with furniture, pictures and parkland from Lord Romney. He kept horses and carriage and was active in public life in the City of London. He was knighted in 1898, became Lord Mayor of

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London and was a leading figure in the London business community. But Marcus Samuel’s dependence on Russian producers left him vulnerable and he decided to seek other sources of oil.The Far East was the obvious place to look – and his first venture into Borneo brought him up against Royal Dutch Petroleum, one of the region’s biggest competitors. The two companies joined forces to protect themselves against the might of Standard Oil, forming a sales organisation in 1903, the Asiatic Petroleum Company. The discovery of oil in Texas offset a series of troubles which had affected both companies.In 1904, the scallop shell or pecten replaced Shell Transport’s first marketing logo, a mussel shell. In various forms it has remained in use ever since, becoming one of the best known corporate symbols in the world.The full merger of the two companies into the Royal Dutch Shell Group came in 1907. There were two separate holding companies with Royal Dutch taking 60% of earnings and Shell Transport taking 40%. The business was run by a variety of operating companies. The merger transformed the fortunes of both companies. Under the management of Henry Deterding they turned from struggling entities to successful enterprises within twelve months.The Group rapidly expanded across the world. Marketing companies were formed throughout Europe and in many parts of Asia. Exploration and production began in Russia, Romania, Venezuela, Mexico and the United States.The first twelve years also provided many exciting opportunities to demonstrate the quality of the products in the new, fast-developing market for gasoline. These included record-breaking races, flights and journeys of exploration. In 1907, Prince Borghese won the Peking to Paris motor rally on Shell motor spirit. The same fuel was used at the Brooklands racing track in the UK. In the Antarctic, Shackleton and Captain Scott used Shell fuel, while Bleriot’s inaugural cross-Channel flight was made on Shell spirit.

Marcus SAMUEL

SHELL IN PAKISTAN:

The Shell brand name enjoys a 100-year history in this part of the world, dating back to 1899 when Asiatic Petroleum, the far eastern marketing arm of two companies: Shell Transport Company and Royal Dutch Petroleum Company, began importing kerosene oil from Azerbaijan

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into the subcontinent. Even today, the legacy of the past is visible in a storage tank carrying the date - 1898. The documented history of Royal Dutch Shell plc in Indo_Pakistan subcontinent dates back to 1903 when partnership was struck between The Shell Transport & Trading Company and the Royal Dutch Petroleum Company to supply petroleum to Asia.

In 1928, to enhance their distribution capabilities, the marketing interest of Royal Dutch Shell plc and the Burmah Oil Company Limited in India were merged and Burmah Shell Oil Storage & Distribution company of India was born. After the independence of Pakistan in 1947, the name was changed to the Burmah Shell Oil Distribution Company of Pakistan. In 1970, when 51% of the shareholding was transferred to Pakistani investors, the name of changed to Pakistan Burmah Shell (PBS) Limited. The Shell and the Burmah Groups, retained the remaining 49% in equal propostions. In February of 1993, as economic liberalisation began to take root and the Burmah divested from PBS, Shell Petroleum stepped into raise its stake to 51%. The years 2001-2 have seen the Shell Petroleum Company successively increasing its share, with the Group now having a 76% stake in Shell Pakistan Ltd (SPL)- an expression of confidence.

Introduction of CALTEX :

Over the past 40 years, GS Caltex, which aims to be a total energy service leader, has been pushing to not only perform in the petroleum and petrochemical businesses, but also to diversify its energy business, thus leading the energy industry. Furthermore, GS Caltex has expanded its business areas into city gas, LNG, electric power, exploration & production, convenience retail, e-business, New and Renewable Energy, thereby covering all energy fields and becoming a total energy service provider with global competitiveness. Through our products and services differentiating us from competitors, we will continue to strive to achieve the vision of "The Leader in Providing a Total Energy Service."Petroleum BusinessGS Caltex has crude oil refining facilities with a capacity of 770,000 barrels a day, and provides a stable supply of oil products to the nation. With Residue Fluid Catalytic Cracking Units designed to crack 145,000 barrels of bunker C oil a day to produce high-valued products such as gasoline, kerosene, and diesel, as well as advanced facilities such as those designed to desulfurize 190,000 barrels of kerosene and diesel a day, GS Caltex proactively responds to the rapidly changing market environment.Additionally, we operate about 3,400 gas stations and about 300 gas filling stations nationwide. In 1996 we opened Korea's first gas station-convenience store combined chain, JoyMart. This is an advanced lifestyle station, a concept far beyond that of a gas station where oil simply is being filled. Also, since 1994, we have been operating the light maintenance franchise chain, AutoOasis.

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CALTEX IN PAKISTAN:

Chevron Pakistan Limited (formerly known as Caltex Oil Pakistan Limited) is a part of Chevron Corporation (earlier known as ChevronTexaco Corporation), a leader in the global integrated energy business. Chevron is the fifth-largest integrated energy company in the world. Headquartered in San Ramon, California, and conducting business in approximately 180 countries, this highly competitive corporation is engaged in every aspect of the oil and natural gas industry, including exploration and production; refining, marketing and transportation; chemicals manufacturing and sales; and power generation. With a diverse and highly skilled global work force of more than 59,000 employees, Chevron and its people take great pride in a commitment to community partnerships, social responsibility and environmental excellence.Chevron Pakistan Limited has operated in the sub-continent since 1938 and apart from the main oil storage facility at Karachi, has 10 Depots throughout the country, which includes three inland terminals in Rawalpindi, Machike and Shikarpur.The company’s Retail network consists of 598 outlets located throughout the country as well as a wide spread distributor network catering to the demands of the Industrial, as well as the Agricultural sectors. Chevron installed its first CNG facility at its Company managed retail outlet at Islamabad. Subsequently, more CNG facilities have been added to the network in Karachi and Lahore increasing the number of CNG refueling facilities to 66 nationwide. In addition, Chevron has also established three CNG conversion kit centers.Chevron Pakistan was the first oil marketing company to introduce many modern concepts in the industry in Pakistan. A hallmark of its technical advantage in the industry is its state-of-the art computerized lubricating oil blending plant, which has been set up and commissioned at the West Wharf Terminal, Karachi. Chevron was the first in modernizing its retail outlets, installing electronic dispensers and implementing Customer Service Systems. It was the first oil marketing company to launch CNG station in Islamabad in 1998. Its modern testing laboratory fully equipped with the latest equipment coupled with fully documented procedures was the first ISO 9000 accredited Oil Testing Facility in the country. It is also the first oil marketing company to acquire ISO 14001:2004 International Environmental Management System for its West Wharf Laboratory and West Wharf Lube Blending Plant . Chevron is the pioneer in establishing Convenience Stores and introducing co-branded Cards in the market.Recently, Chevron Pakistan received three awards in recognition of its world-class Health, Environment and Safety Standards. Chevron Pakistan Lubricant Blending Plant was adjudged to be the recipient of the ChevronTexaco Global Lubricants (CTGL) Safety Excellence Award while Chevron Pakistan Marketing won the coveted ChevronTexaco “Zero Is Attainable”

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Award. Zero is Attainable is a corporate HES annual award programme, that recognises organisations with exceptional Operational Excellence performance during a calendar year. This is yet another acknowledgement of Chevron Pakistan’s exceptional performance and commitment towards Health, Environment and Safety (HES) in all aspects of its operations. Moreover Chevron Pakistan’ Keamari Terminal received “The Most Admired Terminal” award for the year 2004 in the worldwide Chevron system.In the refueling of International Airlines at Quaid-e-Azam International Airport, Karachi, Chevron became the first company in the country to have its refueling facility, accredited with ISO 9000 standards.Chevron Pakistan took the lead in renovating, revamping and modernizing its Retail network bringing the standards in line with its International image in order to provide quality products ad services to their valued customers.The company has undertaken and sponsored numerous environmental projects and had made generous donations to the various campaigns launched over the years, living up to its reputation as a responsible corporate citizen.Chevron has greatly increased the level of its investment in Pakistan over the last decade. The most recent major investment has been in the acquisition and further development of the LPG Business of Sui Southern Gas Company limited (SSGCL) as well as acquiring 11% equity in the White Oil Pipeline. Chevron Pakistan is known as a responsible corporate citizen – by following the local laws and customs and maintaining a long-standing emphasis on safety and health for its employees, customers and other stakeholders. As an equal opportunity employer, Chevron is proud of having women employed in key management positions across different departments. With 98% of its employees worldwide being local nationals, Chevron is a part of the community it serves.

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LITERATURE SURVEY

ARTICLE 1:OIL MARKETING — COMPETITION HEATS UPEfforts being made to retain market share by offering better servicesBy SHABBIR H. KAZMIMar 26 - Apr 01

The government of Pakistan (GoP) aims at minimizing state controls and eliminating subsidies given to local industries. The recent deregulation of Petroleum, Oil and Lubricant (POL) products trade, is also part of its two tier policy: attracting investment in oil and gas sector and accelerating the pace of privatization. While the shift in the GoP policy will open up the oil marketing sector to new investment, the move is expected to intensify the competition among the three oil marketing companies (OMCs). Deregulation of furnace oil business has rationalized its price in the local market. While the deregulation of motor gasoline and diesel trade is expected to put pressure on the profitability of OMCs, the policy is expected to have positive impact on the economic revival efforts of the present government.

The oil marketing sector mainly consist of three companies namely Pakistan State Oil Company, Shell Pakistan and Caltex Pakistan. PSO enjoys the largest market share followed by Shell and Caltex. In the changed market scenario profitability of these companies will be directly related to volume of sales. Therefore, all the companies are investing heavily to improve the quality of services being offered at their outlets.

Business Climate:POL products provide around 43 per cent of Pakistan's total energy requirements, the rest being met by natural gas and electricity. During 1999-2000 the demand for POL products increased to 17.6 million tonnes representing 6.3 per cent growth over the previous year. The consumption included 6.2 million tonnes of furnace oil and 5.5 million tonnes of high speed diesel (HSD) and the balance consisted of other products. While motor gasoline demand declined by 5.6 per cent due to substitution by CNG, HSD demand was up by over 5 per cent and furnace oil demand increased by nearly 10 per cent due to increased consumption by IPPs, WAPDA and KESC.Untill recently local refineries were meeting only 33 per cent of the domestic requirements and the remaining 67 per cent demand was met through import. However, with the commencement

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of Pak Arab Refinery, having a refining capacity of 4.5 million tonnes per annum, the country has become surplus in certain products.

The GoP has initiated measures to completely deregulate the POL trade in phases. Initially furnace oil imports were deregulated with lifting of price controls. Motor gasoline and diesel trade is being liberalized. Sales volume of furnace oil is expected to decline due to the GoP's policy to encourage use of gas by the electricity producers. The high-margin lubricants business encouraged other international companies to enter Pakistan. Over the last 12 months, companies like Elf-Total, BP-Amoco and several smaller regional companies have entered the Pakistan market.

Crude Oil Prices:As the worst of winter is nearing its end and reports also indicate above average inventories, prices of crude oil are expected to decline but remain with a certain bandwidth. OPEC has expressed repeatedly that it would not allow crude oil prices to plunge beyound certain level. Crude oil prices are managed through cuts in daily production quota. The GoP has also decided to revise POL prices on quarterly basis. After a long time, prices of POL products were reduced this month. As the international prices of crude are expected to go down further, consumers may expect further reduction. However, the reduction will be largely depend on rupee dollar parity.

POL Transportation:Till recently, bulk of the POL movement to up country was from Karachi — be it locally refined or imported products. PARCO's pipeline used to handle most of the quantity and remaining was sent through railway wagons and tank lorries. After the commencement of PARCO, this pipeline has been dedicated for transportation of crude oil. However, a new white oil pipeline is scheduled to come on line in 2002. As the GoP has started deregulation of POL trade, now transportation cost will play a key role in determining the profitability of the OMCs.

Privatization of PSO:The GoP has accelerated its efforts to privatize state-owned enterprises including PSO. It is often said that the size of the Company— its paid-up capital and volume of business — was a hurdle in its privatization. However, some sector analysts say that the senior management has been the biggest opponent of PSO's privatization. They also say that profit of the Company would have been much higher had it not suffering from extravaganza and some financial irregularities. A new managing director, from the private sector, has been appointed recently. Under his able leadership efforts are being made to restructure the Company and also exercise cost controls.

The current economic managers have indicated, on more than one occasions, that they plan to off-load the GoP shareholding in various state enterprises through stock exchanges. PSO can be a good test case. It is already listed at stock exchanges, dividend payouts are very high, daily trading volumes are large and the scrip is quoted much above par value. Therefore, sale of atleast 10 per cent shares would be appropriate looking at the market appetite.

POL Prices:

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The POL consumption is considered to have an inelastic demand. The consumption volume of furnace oil and HSD have been increasing despite increase in their prices. However, in last couple of years demand for motor gasoline has witnessed declining trend in its consumption. The lower offtake is due to gradual shift to other fuels, CNG in particular.

Historically, the GoP has been collecting a very substantial amount as development surcharge on POL products to compensate for lower CBR-related revenue collection. While the international lenders did not appreciate this policy, the resistance against this practice also developed to a large extend locally. During the present military regime efforts are being made to minimize dependence on this surcharge. Therefore, it was decided to review POL prices on quarterly basis. The GoP has announced reduction in POL products prices this month.

OMCs are already under pressure due to the gradual deregulation of the POL trade. The latest reduction in prices is expected to put further pressure on the earnings of OMCs. With the reduction in POL prices, companies will face inventory losses. In the past, they were making substantial profit due to inventory gains. However, the extent of inventory losses, in the near future, would largely dependent on the inventory management policy of each company.

PSO may face the most adverse situation due to its higher inventory levels. The Company has not been used to this type of situation in the past. It is also apprehended that the Company does not have a very efficient inventory management system. Shell has been very active on this front and has invested substantial amount in acquiring state-of-the-art inventory management system. This system is expected to give Shell an edge over its other competitors.

In theory, one should expect an increase in motor gasoline offtake after the reduction in its prices. In reality the increase can only be marginal keeping in view the gradual switchover to CNG and HSD. The reduction in HSD price, by almost 17 per cent, may encourage its more use. The reduction in transportation cost will have a positive impact on the overall profitability of fertilizer and cement companies in particular. As a result of improvement in corporate earnings the country may witness increase in BMR as well as fresh investment.

Dealer Margin:The GoP has decided to increase the dealer's margin on POL products by one per cent from April 1, this year. However, the key issue is the ultimate dismantling of freight pool system, whereby all retail outlets across the country have exactly the same prices for the products. According to a report by KASB, "As deregulation proceeds, this method becomes onerous for the government finances. Thus, we believe that this increase in margin is but the first step in gradually ending the freight pool system over time. While the cost to exchequer is reportedly going to be Rs 1.5 billion because of this one per cent increase in dealers commission, the government hopes to offset this by reduced charges on transportation at secondary distribution level which would now be borne by the oil marketing companies."

The report further says, "The immediate impact on the end consumers is initially likely to be neutral while in the near term the OMCs might face marginally higher distribution costs. If this

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view is correct, then we feel that over the medium term there may be a potential for distribution margins also being enhanced. That is where OMCs would certainly benefit from a bottom line perspective. However, it is too early to give a considered view untill some clear indication in this regard is forthcoming from the government."

The Players:Pakistan State Oil Company (PSO) is the largest OMC and the only national company in the business of POL products marketing business. During the year 1999-2000 the Company sold a total volume of 12.7 million tonnes as against 12.1 million in the previous year. The total sales increased by 17 per cent amounting to Rs 135 billion. The Company has undertaken a number of steps to arrest the decline in its market share over the last several years. It has launched a plan to build New Vision outlets to provide better quality service to its customers.

At present PSO has more than 3800 outlets located throughout the country. Out of these, 150 outlets have been revamped so far and another 40 will be fully functional by the year end. At the same time the number of company owned and operated outlets has been increasing. To motivate and strengthen dealer network 'Million Litre Award' has been initiated. During 1999-2000 efforts of 11 dealers were recognized through distribution of this award.

After the deregulation of furnace oil business in July 2000, PSO was the first OMC to invite international bids for import of the product. A total of 1.9 million tonnes furnace oil was imported by the Company during July-October period. The Company maintained uninterrupted supplies insipite of huge demand by WAPDA, due to lower hydel power generation and explosion at Kuwait Petroleum Company refinery. PSO has signed a long-term product off-take agreement with PARCO. The Board of Directors has approved the acquisition of 12 per cent (approximately Rs 950 million) in Karachi-Mehmood Kot 864 kilometer long white oil pipeline project, which is scheduled to be completed by December 2002.

SALES VOLUME

(Million tonnes)

Year Quantity

1996 11.6

1997 11.9

1998 12.7

1999 12.1

2000 12.7

REVENUES

(Rs in billions)

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Year Quantity

. 81

1997 110

1998 121

1999 116

2000 135

Shell Pakistan is not only the second largest company, enjoying 32% of the market share, but it also offers superior quality services to its customers. To further improve its services, it has been developing a network of Company-operated sites. Whilst contributing to the bottom line, these serves as models of excellence for dealer-operated outlets and are also used for testing market initiatives. Another customer service, the 'Shell Genie' fast and free oil change facility has been extended to more outlets. This has helped the company in increasing its lubricants sale. A site in Rawalpindi has set a new world record by carrying out 1,678 oil changes in a single day. Its Lube Oil Blending plant is ISO-9000 certified ensuring continued supply of highest quality products. The Company has also initiated agency business for a new range of gear oils for commercial transport customers.

Shell has also initiated Business Process Re-engineering project — CHIPS. This project is planned for completion within this year. This name reflects the key themes: Change, Integrate and Profit. The Company envisages to achieve revolutionary change in the way people work; by harnessing new technology to streamline business processes and focus on customers. The Company plans to link over 30 locations via a new satellite-based telecommunication network providing up-to-date information on details such as customer orders, delivery status and stock levels. Another milestone in IT infrastructure include the connectivity of Shell House to all its major outlets in Karachi over a fully backed up 'Line of Sight Radio' communication network. The network is constructed in such a way that communication to Shell House can never be disrupted. An advance Remote Access System has been installed to provide 24 hour on-line access to Shell House. This has allowed access to the Head Office network by all remote users.

In 1993 The Royal Dutch Shell Group acquired a controlling interest in Shell Pakistan and, since then, profits have improved substantially. Profits are not only used to pay dividend and taxes, the amounts are also reinvested. Over the last seven years more than Rs 5 billion have been spent on building new and improving existing assets. Out of this the most visible investments are in branded service stations and tank lorries. Upto June 30, 2000, the total number of such outlets was 386.

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SALES VOLUME

(Million tonnes)

Year Quantity

1996 3.0

1997 2.9

1998 3.2

1999 3.5

2000 3.7

REVENUE

(Rs in billions)

Year Amount

1996 27

1997 38

1998 43

1999 50

2000 62

Caltex Pakistan has a smaller market share as compared to other two giants. To combat the onslaught of the process of deregulation, the Company has formed an alliance with Shell for import and handling of gasoline and HSD. However, the Company is not expected to witness any substantial gain in its market share due to a constrain of limited number of outlets.

Attock Oil Refinery acquired the permission to establish its own outlets some years ago. It had the plan to establish these outlets in the northern region. It is expected that after the increase in its refining capacity the Company would start establishing its own outlets.

Pak Arab Refinery has formed strategic alliance with some of the world leaders for marketing of its products. Since it has a very large refining capacity and some of the products being produced are in surplus, it has two options: export the surplus or establish its own outlets. Raising money to establish the outlets should not be a problem. However, sector analysts

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believe, that its top priority is establishing the white oil pipeline which is scheduled to come on line in 2002.

OutlookThe GoP must undertake speedy privatization of PSO. In the mean time at least 10 per cent of the shares owned by the GoP should be off-loaded through stock exchanges. Sale of PSO shares will not only enable the GoP to raise substantial money but will also help in convincing investors that it is serious in privatizing state enterprises. There seems to be no hurdle except lack of will on the part of the GoP.

The OMCs will experience a decline in their margins. Sales volume will play a key role in the profitability of the companies. The companies already face a severe competition. In future, two factors will determine the profitability of the OMCs. These are: volume being handled and inventory management system. Prudent inventory management system is will play a key role as further reduction in POL prices is expected.The reduction in POL prices will have a positive impact on the economy in general and fertilizer and cement sector in particular. Most of the domestic industries will experience a relatively more favourable cost base. This alongwith expectations of improving economic growth may improve the overall corporate earnings.

ARTICLE 2:PSO sale may trigger race for region’s oil-------------------------------------------------------------------Muhammad Aslam

Who will be the successful bidder after the government offers the controlling shares of Pakistan State Oil for sale to the private sector under its privatization programmed sometime in June?This is being debated in oil circles but there is no ready answer as it could well be one of the toughest corporate fights among the world oil giants ever witnessed in this part of the world.

No prospective world investor having resource and back-up facilities would like to give a virtual walkover to his rival in the bidding for a blue chip share such as PSO. Holding a market share of 75 per cent in the retail petroleum products distribution network, an annual sales volume of Rs 82 billion, assets of Rs 16 billion and above all, a market leader in more ways than one, the PSO is certainly attractive investment bait.

World oil market leaders, notably Mobil Corporation, Shell Pakistan and British Petroleum (BP) are said to have already taken positions with a vow to fight to the last as the bait has many cross-border ramifications for the winner. There are three contenders for the PSO bid while others oil giants may join the race later.

Privatization of PSO has relevance for those who have already a big stake in the Central Asian oil business both retail and exploration as it could well provide the missing link for the retail

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business here. And this factor, including the proximity of the possible source of supply, put the Mobil Corporation on the top of prospective buyers of PSO.

After having bought a lubricant plant here, Mobil Corporation will enter the retail oil business possibly by the next month. Sitting in Islamabad its country manager could be instructed to join the race for the PSO shares. Data on the subject is already being collected by the bidders

There are no resources or any other technical problems for the three possible bidders as none could beat the other on these counts, said an oil expert adding the Mobil could have an edge over others for more than one reasons including its strong oil base in the Central Asian countries.Shell (Pakistan), an equally resourceful contender, already holding 20 per cent of the retail oil market share here, or Rs 30 billion annual turnovers might have an obvious bidding disadvantage.

Under policy guidelines laid for the essential commodities, the government is bound to discourage any sort of monopoly and opt for an open market competition policy to ensure fair prices for the consumers. Caltex might not have much of a say in the retail market because of its modest five per cent market share if Shell wins the PSO bid. The bosses of Shell Pakistan if they really intend to protect their retail business here into the 21st century will have to seek refuge in same fool-proof device compatible to the magnitude of Pakistan’s new century unfolding oil scenario. But owing to its contribution in restoring customer confidence in the quality of products and new customer-related concepts including Retails VISUAL Identity (RVI) qualify Shell Pakistan to be one bonafide bidder.

British Petroleum (BP) after the recent visit of its president is also very much in the battle arena but is still to show its cards. Whether it will opt for oil exploration, chances for which are not that bright or the retail business is not clear but it surely could be one of the PSO stake bidders.Caltex Corporation Pakistan appears to be not that enthusiastic about the PSO battle as its high-ups seem to be more than satisfied with their market share of 5 percent in the retail business. Having strong presence in the gulf and the South Asian region, the big question is this: why Caltex is a reluctant retailer in an expanding market, with a growth rate of 10 per cent, many may well ask. But Caltex people like to work in low- key.

However, its groups recently launched corporate identity campaign focusing on building value for customers through improved services has shown astounding success in the Gulf.

Corporate identity:The launch of the new identity the world over has changed the old one. Let us see how Caltex does business after the sale offer of the PSO share. It might also be one of the bidders to protect its interests. There are fear in some quarters that foreign oil giants could form a cartel to manipulate POL prices at the retail level after the privatisation of PSO, the only counter-balancing force and it is essential that three should be more than one retailers working under the free market economy system.

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But oil analysts allay these fears. Shell, Mobil, BP, Caltex and some others have stakes in all the countries but are engaged in healthy competition to pass on the benefits of world price decline to billion of their consumers.

However, the question may well he asked why the government should privatise an enormously viable and profitable corporate entity at all. Successive former governments, owe PSO too much as in difficult periods it has lined up funds from foreign markets, on the strength of its credit worthiness to fill in official resource gaps. Ruling at Rs 270 for a 10-rupee share (Peak at Rs 425), with a good dividend record and reciepient of Corporate Excellence awards for successive years, PSO could be an envy of any investor. But the government needs money under its recently launched National Debt Retirement Programme and might not have some rethinking on the issue. Official Refuge: Many oil analyst say PSO has its own identity in addition to playing the role of an official refuge and should not be bracketed with the six units and other utilities such as Sui Southern Gas and Sui Northan gas. There is a difference between the losing and earning companies. The debt of 30 million dollars is too big an amount to be repaid through the sale of national assets. Irrespective of an academic discussion on the issue, the government is not inclined to look back and is expected to go ahead with its privatisation plan and after June PSO might have a new management. Who it could be is too early to say after winning the biggest financial battles in the corporate history of Pakistan. Shell, BP, Caltex and Mobil all have are equal chance. But after the delayed deregulation of retail distribution network by July 1998, the oil business for customers might not taste the same as during the last five decades.

ARTICLE 3:FROM BUSINESS RECORDERHedging of oil price risk SHAHID SCHEIK (April 09 2007)

In an age of soaring oil prices, hedging has become a crucial part of business for the most successful companies, whether in the oil value chain, where the existence of hedging strategies adds significantly to a company's value, or in oil or gas consuming companies such as fertilisers, airlines, shipping, power generation, railways, etc.

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WHAT IS HEDGING?

The most important thing to bear in mind is that the principal goal of hedging is not to make money but to protect from losses. While the number and variety of hedging possibilities is practically limitless, whatever the strategy, the common denominator is that hedgers willingly give up the opportunity to benefit from favourable price changes in order to achieve protection against unfavourable price changes.

The two primary instruments used to hedge are: Futures and Options. Hedging with Futures - when you sell a commodity in advance to lock in a price and, in exchange, give up the opportunity to make more money if prices rise. This is achieved either through active or passive hedging.

Passive hedging is used by highly risk-averse companies that would like to be completely certain of their future cash flows through hedging of their entire risk exposures. This is done by locking a specific price either through (i) long term contracts between supplier and buyer, or (ii) through a derivatives contract such as futures, forward or swaps, available on most leading commodity exchanges or (iii) as over-the-counter (OTC) bilateral contracts.

Active hedging is an approach by which a company seeks to achieve a balance between hedging risk and the cost of hedging by hedging only part of its overall exposure either through a long term contract or a derivative instrument, and keeping the remainder of the exposure un-hedged so as to benefit from favourable market movements, either through exercise of Options or deals in the Spot market.

Hedging with Options - Companies can include the benefits of price changes in hedge contracts by resorting to Option contracts, which allow them to either buy or sell in the spot market without necessarily being committed to the hedge contract. But such a method imposes a heavy hedging cost in the form of Option Premium, which has to be paid up front at the time of hedging.

WHY HEDGE OIL?

Crude oil prices have become more volatile than the prices of other commodities Standard deviation of monthly percentage changes.

In the industrial age, oil price risk is of course extremely important to all those involved in the oil industry: producers, refiners and end users. The volatility of crude oil prices has a significant impact on the planning decisions, budgets and cash flows of producing and consuming companies.

The nature of risk exposure of an organization to fluctuations in oil prices depends considerably on its position in the oil value chain. For instance, an E&P company is perennially exposed to the risk of any decrease in the oil prices. By contrast an oil refining company would be largely

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concerned about protecting the spread between crude oil and refined products (motor spirit, diesel, naphtha, etc); and oil marketing company would be concerned about the variation in the retail margin, i.e. the difference between import or ex refinery price and the sale price to customer or consumer.

Considering the extensive reliance on budgetary revenue from oil products and the trickle-down effect of oil prices on national economies, price risk management of oil is a critical requirement for governments, particularly in import-dependent, energy-deficient countries. Therefore it makes sense for public sector stakeholders to develop some sort of hedging program to insure that they are protected against a collapse or a run up in oil prices.

While companies are of course free to choose hedging with options to make money, entities such as public utilities or governments should refrain from hedging as a source of extra profits. Rather, their policymakers should only look upon hedging as a means to stay within budget forecasts, to ensure certainty of cash flow and, by stabilizing energy prices, protect the economy from shocks.

HEDGING VS SPECULATION: It is important to distinguish between hedging and hedge funds. While corporations and governments hedge to reduce volatility, the Exchanges that make hedging possible also accommodate speculators who use the same instruments in an effort to make money.

Hedge funds, or speculative commodity pools, are made up of institutional investors or groups of investors that shift large sums of "hot money" between different markets at the first sign of a possible higher rate of return elsewhere.

In this sense, the term "speculators" usually refers to investors who trade oil futures with a view to profiting from the rise or fall of prices; they have no exposure to the physical oil commodity.

By contrast, hedgers have sizeable spot or forward market commitments and trade futures contracts in order to minimise their exposure to price fluctuations. There is almost always an underlying physical contract behind a hedging trade.

A country's ability to cope with prolonged high oil prices is said to depend on four key factors - how economically (and politically) resilient it is to start with, how dependent upon oil imports, how intensively it uses energy, and how heavily it subsidises fuel prices.

In a recent Australian survey of the region, on a scale of 0-7 (zero being best) Pakistan scored 6 for its ability to cope with oil price risk. By way of comparison, Taiwan scored 1, China 2, Malaysia 2, India 3, Vietnam 5, Indonesia 5, Sri Lanka 5, Bangladesh 6, and Myanmar and Nepal 7 each.

Oil price volatility in 2006 has hit hard some of Pakistan's best known corporations, plunging several into loss and wiping out the profitability of others. The most publicized example is that

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of PIA, which saw its fuel bill rise by Rs 17 billion, and which would have turned a profit of Rs 3.5 billion if it had ensured stability in its oil purchase prices.

In the Oil sector, the gross profits of PSO and SHELL declined by 50%, the loss of income being caused principally by imports of HSD and Furnace Oil that were un-hedged against adverse price risk. By contrast, Attock Petroleum, which does not carry import price risk, reported an increase of 28% in its GP for the same period.The four listed Refineries made a loss of Rs 0.5 Billion in H1 2007-08 compared to a profit of Rs 2.9 billion the corresponding year-ago period due to higher input prices of crude oil.

The woes of KESC and WAPDA due to high Furnace Oil prices and the cost to government for subsidizing these entities are all well documented. Not so well-documented is the cost to companies such as PNSC and Air Blue, both major purchasers of oil products or budget dislocations to public sector entities such as Pakistan Railways and the Defence services, but these can be estimated to be substantial.

The prognosis for 2007 is not encouraging. Furnace Oil imports are expected to increase by 80% in FY 2007-08, due to demand from electricity generating companies and industrial consumers facing shortage of natural gas supplies.

PLANNING FOR THE FUTURE:

Pakistan's oil imports, which are projected at USD7.5 billion for FY 2007-08, are not expected to decline in monetary terms, even if oil prices move down, because of the annual 12% growth rate in energy demand.

If the on-going LNG, piped gas and electricity imports plans do mature into fruition, the country's level of risk to oil and energy price volatility will rise correspondingly.

This suggests a need for (i) capacity-building in hedging among the oil industry, oil-consuming corporations in the public and private sector, financial sector companies and regulatory agencies; and (ii) development of a framework by which hedging of energy (oil, gas, electricity) can be regulated.

The losses already suffered and the possibility of further losses, in view of the known geo-political factors influencing oil and energy price stability, indicate there is little reason for stakeholders to procrastinate.

Hedging is not a new frontier. It is a financial instrument that is already widely used and practised internationally and regionally. Like any other risk mitigation instrument, hedging has its upside and downside, the latter countered through professional competence, knowledge of the overall market and the complexities of the transactions, and proper regulation and reporting of hedge trades.

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Policy-makers in Pakistan do, however, have the benefit of creating a proper regulatory environment by studying and avoiding the mistakes made by other countries during their learning curve.

For companies and government faced with possible billions of rupees losses or subsidies, it is the need of the hour to understand and use to advantage hedging of oil prices for mitigating the risk to the financial health of their charges.ARTICLE 4:PSO posts all time high profit RECORDER REPORT KARACHI (February 16 2008)

Pakistan State Oil Company Limited, the largest state owned oil marketing company in the country has achieved a historic milestone with gaining all time high profit before tax of Rs 8.2 billion and profit after tax of Rs 5.5 billion in the first half of financial year 2007-08. This was achieved owing to 13 percent higher sales volume as well as due to inventory gains during the period.

The Board of Management of the company, in its meeting held here on Friday declared second interim cash dividend for the financial year ending June 30, 2008 at the rate of Rs 6 per share ie 60 percent. This is in addition to first interim dividend already declared at Rs 5.00 per share ie 50 percent.

Sardar M Yasin Malik, BoM Chairman, presided over the meeting. According to the financial results, PSO's profit for the period surged to Rs 5,487.962 million in the six-month period ended December 31, 2007 as compared to Rs 1,136,739 million earned in the corresponding period last year.

The company's earning per share increased to Rs 32.00 in the period under review against Rs 6.62 per share in the same period a year back. The company in its announcement said that despite intense domestic competition PSO was able to sell over 6.2 million tons of POL products, showing a 13 percent growth and translating into an all time high sales turnover of Rs 248 billion - an increase of 25 percent over prior year.

The all time high profit before tax of Rs 8.2 billion and profit after tax of Rs 5.5 billion was achieved owing to 13 percent higher sales volume as well as due to inventory gains during the period. PSO has approximately 80 percent of the country's storage capacity and has recorded gain or loss on its stock depending upon international oil price movement. Last year the company had an inventory loss during the same period.

Based on the improved performance, the Board of Management announced the second interim cash dividend of Rs 6 per share, in addition to the first interim dividend of Rs 5 per share translating into a cash payout of Rs 1.9 billion to its shareholders, which is Rs 5 per share more

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than the prior year period.

During the first half of FY08, international crude oil prices averaged over $78/bbl as against $61/bbl in 1HFY07. The trend of increase in crude price witnessed in the first quarter of FY08 continued during the second quarter, with Opec basket price peaking at $92/bbl during the first half as compared to $73/bbl during the same period last year.

Throughout the first half the company continued to face liquidity problems due to ever-increasing receivables from the government resulting in galloping financial cost. Despite the rising international prices, government continued to provide the subsidy in diesel, which touched its highest ever level at Rs 17.14 per litre in December 2007. At this level of subsidy the sale price of diesel would have been Rs 54.87 per litre vs current price of Rs 37.73 in the market.

The subsidy accumulation on account of Price Differential Claims (PDC) reached a level of Rs 26 billion at the end of November, however, a reimbursement of Rs 12 billion was received through financing arrangement with a syndicate of banks, thus mitigating the cash flow crunch to some extent. The company is pursuing another similar arrangement to address the increasing PDC receivable.

Following a 13 percent growth in sales volume PSO was able to enhance its overall market share to approximately 70 percent compared to 67.4 percent in the same period last year. The company outperformed its competitors by recording 14 percent increase in White Oil sales volume against industry growth of 10 percent, whereas Black Oil sales increased by 11 percent versus a single digit industry growth of 6 percent.

Consequently, the company improved its market share in Motor Gasoline from 46.3 percent to 50.1 percent, while High Speed Diesel market share increased to 62.9 percent. Similarly, Jet A-i market share increased to 63.6 percent vs 62.8 percent in the same period last year. In fuel oil, the company maintained its leadership with 81.5 percent market share.

PSO has been maintaining strong focus on enhancement of Non-fuel retail business. Accordingly ATMs were installed in collaboration with leading banks at selected retail outlets. The company also established food outlet as part of its Quick Service Restaurant (QSR) network plan in collaboration with a foreign fast food chain at one of its retail outlet, which is the first internationally recognised Quick Service Restaurant (QSR) established at any OMC's forecourt in Pakistan. PSO customers can now experience state-of-the-art car cleaning solution 'Wash Express' which has been introduced at selected outlets.In order to maintain its leadership position in aviation industry, PSO developed exclusive aviation, consumer and retail facilities at the newly developed Sialkot International Airport (SIAL) inaugurated by the President of Pakistan in December 2007. PSO's refuelling facility at SIAL is fully capable of providing services to larger body aircraft as per international Aviation Quality Control & Safety Standards.The Pakistan Credit Rating Agency (Pacra) assigned your company a long-term and short-term entity ratings of 'AAA' and A1+ which is the highest credit ratings in Pacra's rating scale.

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During the period under review, PSO also won the Pakistan Society of Human Resource Management (PSHRM) Most Preferred Local Company Award thus moving towards becoming the 'Employer of Choice.' The company also won ICAP-ICMAP 'Best Corporate Report Award 2006 in Fuel and Energy sector. The Board expressed its confidence that the management remains well poised to meet anticipated market challenges and continue to deliver improved performance.

ARTICLE 5Understanding the Petroleum Scam in Pakistanby Dr Farrukh SaleemPublished in The News on January 27 2008

In May 2006, the international price of oil hovered around $66 per barrel (OPEC Basket). On January 2, oil in New York was traded at $100 per barrel (NYMEX) while OPEC Basket was quoted at around $90 per barrel (remember, in January 1999, oil had hit a low of $11 per barrel).Yes, in May 2006 the price of diesel in Pakistan was Rs37.18 per litre. Yes, Shell Pakistan is still selling diesel at Rs37.73 per litre. In effect, the price of oil in the international market has gone up by a whopping 40 per cent but the government of Pakistan is providing diesel to Pakistanis at rates lower than the international market (India hasn’t increased the price of petrol and diesel in 18 months).

We all know that our government has absolutely no control over the international price of oil. What we must also recognize is that Pakistan’s oil industry is a cartel and the best thing that a cartel does is rip off consumers. Our oil cartel essentially has nine major members and 169 million consumers to be ripped off. Our oil industry is oligopolistic in nature; from Greek ‘few seller’, many buyers and an inelastic demand (quantity of oil demanded by consumers changes little with a price increase).

Here are the nine major members of the oil cartel: Pakistan State Oil (PSO), Pak-Arab Refinery (PARCO), Attock Refinery Limited (ARL), Attock Petroleum, National Refinery Limited (NRL), Pakistan Refinery (PRL), Chevron/Caltex, Shell Pakistan and Total-PARCO. They own each other, they sit on each others’ boards and they own projects jointly. ARL, Attock Petreleum and NRL are all owned by the Attock Group. PSO, Shell and Caltex own PRL jointly. The government of Pakistan owns 60 per cent of PARCO while Total and PARCO are partners.

Here’s how 169 million consumers are being ripped off:

One, no refinery in Pakistan is technically capable of producing 0.5 per cent sulphur diesel (emission control standards in Europe and North America now require refineries to produce ultra low sulphur diesel). All that our refineries produce is 1 per cent sulphur diesel. In essence, Pakistani consumers are being supplied an inferior quality product at the price of a superior product. The average differential in price–between 0.5 per cent sulphur diesel and 1 per cent sulphur diesel–is $18 per ton. Pakistani consumers are being ripped off a hefty Rs4 billion a year.

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http://www.teeth.com.pk/blog/2008/01/28/Published%20in%20The%20News%20on%20January%2027%202008

http://www.teeth.com.pk/blog/2008/01/28/understanding-the-petroleum-scam-in-pakistan

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Two, in November 1999, the freight component on a litre of diesel fuel stood at Rs0.65. In December 2004, ‘Inland Freight’ on HOBC amounted to a scandalous Rs12.24 a litre. Someone is making truckloads of money because transporting a litre of gasoline should not be costing more than Rs0.30.

Three, in July 2002, the government of Pakistan allowed refineries to impose a 5 to 10 per cent ‘deemed duty’ in order to create a special reserve for the purpose of upgrading. The refineries have sucked up Rs18 billion from Pakistani consumers but not a rupee has been spent on up-gradation.

Four, since 2001, the government of Pakistan has been collecting an average of Rs40 billion to Rs50 billion a year in the form of ‘Petroleum Development Levy’ to be used for the stabilization of prices in future years. That reserve should have crossed Rs200 billion (the levy was ended in 2005). Can anyone please tell me where that reserve is?

Five, refining margins charged by Pakistani refineries are, in some cases, twice as high as being charged by refineries outside Pakistan. The cartel has served its members well. Look at who is making millions if not billions: PARCO made Rs1.2 billion in 2000-01 and now makes in excess of Rs10 billion. NRL has gone from a meagre Rs23 million in 2000-01 to Rs4 billion. ARL has gone from making Rs29 million in 2000-01 to Rs1.7 billion.Yes, Pakistan’s oil cartel is now demanding from the government a colossal Rs49 billion as ‘Price Differential Claim’. Yes, Pakistani consumers would have to pay more because the international price has gone up. But, governments around the world support consumers, not cartels. We are special. Governments around the world break cartels. We are special.

Consumer Protection or Brand Courtesy: Case of the Oil & Gas Retail - Part 1Stop at any of the 99.9% CNG filling stations of PSO, Shell, Caltex, Attock Oil in Pakistan and you will get robbed of your hard earned money…well voluntarily though! Yes thats what you do to yourself when you do not get the worth of CNG that you actually pay for. Here is how.Majority of the CNG dispensing machines installed at the CNG stations through out Pakistan do not have automatic meters to give the motorists “exact fill for their bill” (could actually be the name of an awareness campaign). Every time a motorist drives into a CNG filling stations they end up paying atleast 50 paisas/cents more than the dispensed amount of gas. The station attendants manually stop the dispenser and despite doing it for years and years it is amazing that they have not mastered the art of stopping the dispenser at the exact reading (or atleast very close).

In monetary terms this means accumulation of un-accounted earnings amounting to millions for hi-frequency stations, evey month! Where are the regulatory bodies, civic societies and the consumer sense?

The solution is simple and so is the reason behind this malpractice. All that needs to be done is to install these manual CNG machines with modular meters that would do the job. The reason for

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http://greenwhite.org/2007/05/17/consumer-protection-or-brand-courtesy-case-of-the-oil-gas-retail-part-1/

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not doing is our “ignorance” (for the illiterate) and withering “self-disrespect” (for the learned?!) that we accept being robbed every day of our lives. Its so funny since we have set a monetray limit for being robbed i.e. in cents.

PROBLEM DEFINITION

A problem can be simply defined as an interest in an issue where finding the right answers might help to improve an existing situation. Thus it is fruitful to define a problem as any situation where a gap exists between the existing and the desired ideal states. So, in our research problem statement is “COMPARATIVE ANALYSIS OF OIL MARKETING COMPANIES IN PAKISTAN”.

IDENTIFICATION OF VARIABLES

A variable is any thing that can on differing or varying values. Following are the types of variable that we identified in our research:

1. Dependent variable.2. Independent variable3. Moderating variable4. Intervening variable

DEPENDENT VARIABLE:Dependent variable is the variable of primary interest to the researcher. In other words it is the main variable that lends itself for investigation as a viable factor. In this research report dependent variable is “Comparative analyses of Oil companies in Karachi are equal”. Our whole research is moving on the basis of this variable.

INDEPENDENT VARIABLE:An independent variable is one that influences the dependent variable in either a positive or negative way. With each unit of increase in independent variable, there is an increase or decrease in dependent variable also. So in our research “Facilities of PSO” is the independent variable. These factors influence the dependent variable either in a positive way or in a negative way depending on situation. So independent variables are:

Better fuel quality. PSO has more number of petrol stations and hence has convenience of location. PSO cards:

Prepaid cards.

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Fleet cards. Corporate cards. Loyalty cards. Privilege Loyalty Cards.

MODERATING VARIABLE:

Moderating variable is one that has a strong contingent effect on the independent variable-dependent variable relationship. “Better customer services provided by PSO” is the moderating variable in our research. It is due to because people mainly see performance but if services provide are also very good then obviously it has a strong contingent effect on decision.

So moderating variables are the customer services such as: Oil change. Air/Tire Facility. Drinking Water. Convenience Stores. Toilets. CNG. Workshops. Car Wash.

INTERVENING VARIABLE:

An intervening variable is one that surfaces between the time the independent variables start operating to influence the dependent variable and the time their impact is felt on it.In this case, intervening variables can be:

Other fuel companies providing better services

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DEVELOPMENT OF HYPOTHESES

The tests of Hypothesis are used to test the validity of a claim about the value of population parameter. A statistical hypothesis is a quantitative statement about a population or simply a statement that something is true. It is an assertion or conjecture concerning one or more populations. The hypothesis which we want to test is called the Null hypothesis and is denoted by Ho. Any other hypothesis which is taken against the null hypothesis is called the Alternative hypothesis and is denoted by Hi.

Chi Square Goodness of Fit Test

Step-1: State the Null & Alternative Hypothesis.

i. NULL HYPOTHESIS:

“Comparative analyses of Oil companies in Karachi are equal” is our Null Hypothesis.

ii. ALTERNATE HYPOTHESIS:

“Comparative analyses of Oil companies in Karachi are not equal” is our Alternate Hypothesis.

Step-2: Level of Significance:

In hypothesis test we call Alpha ( α )as “Significance level”, and if it is not specified then always set to 0.05. In this case α is divided equally into Two Tails,Hence, α/2 = 0.05/2 = 0.025 With Degree of Freedom i.e. k – 1 (where k is the number of categories) = 4 – 1 = 3

Step-3: Calculate the Critical value.

Then, from Chi-Square Distribution TableCritical Value = (0.025, 3) = 9.348

For this situation n=100 and k=4 then the Expected frequencies for the four categories are equal and are given by: 100/4 = 25

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Step-4: Compute the Test Statistics

Test Statistics( χ ) = ∑ [(o – e) ^ 2/ e]

χ = 34.560Chi Square Testing

COMPANY’s OBSERVED EXPECTED (o-e) (o-e)^2 (o-e)^2 / e(o) (e)

PSO 45 25 20 400 16SHELL 33 25 8 64 2.560CALTEX 13 25 -12 144 5.760OTHER 9 25 -16 256 10.24Total 100 864 ∑=34.560

CURVE:

Critical Region

9.348 34.56

RESULT:The calculated value of Test Statistic is compared with the Critical Value.Since 34.56 > 9.348Hence, the Null Hypothesis is rejected and Alternate Hypothesis is accepted,i.e.: Comparative analyses of Oil companies in Karachi are not equal.

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RESEARCH DESIGN

Research design is a step by step process. It provides the basis for testimony. The need of the research itself determines the methodology and the design of the research.

Detail of study includes:

Purpose of the study Types of investigation Extent of researcher interference Study setting Unit of analysis Time horizon

PURPOSE OF THE STUDY:Our purpose of study is “Hypothesis testing” because in this research we test our hypothetical statement which we developed in previous step.

TYPES OF INVESTIGATION:Our type of investigation is “co relational” because we find the important variables or factors that contribute their part in providing an edge to the most preferable oil company.

STUDY SETTING:Nature of our research is of “non contrived” because we do our research in natural environment and not in Artificial environment that is not in labs. UNIT OF ANALYSIS:In our research unit of analysis is “group” because in this research, questioner are fill by a group of people who avail the services of petrol pumps. We collect the data from this specific group who are vehicle owners.

TIME HORIZON:Our study is “one-shot” or “cross-sectional studies” because in this research data are gathered

just once in order to answer research questions.

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QUESTIONNAIRE ANALYSIS

• No. Of questionnaire filled = 100 • No. Of error free copies = 100 • Percentage of response rate = 100%

The Need for Information:

The management at PSO is involved in developing strategies that will help in meeting customers’ needs in a more efficient and profitable manner. The increased competition renders it important to identify what the customer needs. This provides an opportunity to serve the customers better if we know what the customers want. PSO has always placed great emphasis on identifying new approaches for satisfying the customers to attract more and more customers to the petrol pumps on one hand, and on the other hand, to form long-term relationship with the PSO company.In the highly competitive world of today, the quality of service provided to customers determine whether the company would be able to retain these customers or not. The aim, therefore, is to understand and anticipate what the customers look for, when they come to a petrol pump. In case the service level and facilities that are highly valued by the customers are provided inefficiently, PSO needs to identify these areas and improve its performance there. In case the customers are not getting the desired service level, there is an opportunity regarding what needs to be done to provide the customers with need satisfying products and services.

S A M P L I N G D E S I G N

To conduct the report it is important to identify the population, samples, elements. and other

sampling items that will be part of the research

Element and units:

The element and unit size would be consumer that visit petrol stations

Extent:

Karachi was selected as the city where research would be considered.

Time:

Research would be conducted during the period of April - May 2008.

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Population:

The population would comprise of all consumers of petrol in the country.

Sample Size:

Due to the time consideration a sample size of 100 customers is considered. Although the

sample size is small however this will also result in less non-response error.

Research Procedure:

A non-probability sampling method is being carried in the report. Both judgmental and

convenience procedures will be used.

The company specified the areas and the petrol pumps where the research needs to be

carried and it was up to my choice to select the respondent for the filling of the questionnaire.

M E A S U R M E N T I N S T R U M E N T

A questionnaire has been prepared which will be filled by the samples selected for customers

residing in Karachi

The data collection instrument used to collect the primary data is a structured questionnaire with

open and close-ended questions. Using questionnaires for gathering information allows the level

of flexibility required for this research. This has been done to collect accurate information with

the help of questions, which are relevant in the circumstances.

The questionnaires in most cases will be self-administered, which means that the interviewer

himself will ask the questions rather than giving the questionnaire to the respondent to fill out.

The reason for this approach is that in asking questions form the customers guaranteed that

responses to all the questions was recorded and in case there was a problem in interpreting the

question by the customer, the question was clarified by the interviewer before answering the

question.

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T Y P E O F Q U E S T I O N S

The questionnaire consists of 10 questions. These questions are aimed at gathering customer

responses on factors, which are under discussion and are aimed at achieving objectives.

As it’s a general knowledge that city customers have less time to respond to the questions

because the normal time taken to fuel a car is 3 - 5 minutes. Visits to petrol stations are

considered a chore therefore most people are normally in no mood to answer questions. Similarly

people at central locations cannot spare more than a minute or two to answer questions since they

are rushed or are in a hurry to reach someplace. The questionnaire therefore had to be

administered during this time period.

For this reason, the length of the questionnaire and the combination of questions are adjusted

keeping in mind the time constraint. Therefore, most questions were closed-ended, signifying the

importance of getting to the point and accurate answers

M E A S U R E M E N T T E C H N I Q U E

The measurement techniques that are being used in this research survey are questionnaires and

attitude scales that helped us in eliciting reports of the consumer perceptions and preferences

about different automobiles that were selected for this particular report. For this reason, a

questionnaire was prepared with the help of rating and composite scales that helped us in

gathering information regarding the degree of importance and the value individuals assign to

different attributes.

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ANALYSIS AND INTERPRETATION OF QUESTION

Q U E S T I O N N U M B E R 1

ON AN AVERAGE HOW MANY TIMES DO YOU VISIT A PETROL

STATION ?

PURPOSE OF QUESTION:

The question was developed keeping in mind that the first question of an effective questionnaire

should be neutral in order to prevent the respondent from becoming conscious towards or against

any factor which might positively or negatively influence him to give inaccurate responses to the

other questions in the questionnaire. The question will help us in knowing the usage rate and the

frequency with which our respondents on average visit a petrol station.

FINDINGS

Total No. of Respondents 100 % Daily 47 47%Twice a week 21 21%Thrice a week 19 19%Other 13 15%

Once a week 9 9%After 2weeks 4 4%

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Q U E S T I O N N U M B E R : 2

WHICH PETROL STATION DO YOU GENERALLY VISIT?


The aim of this question was to measure what sorts of preferences are held by the customers

regarding the different petrol pumps. Seven answer choices were provided as a response to the

question. The choices were as follows:

SHELL

CALTEX

PSO

Other ________

This question aimed at understanding the degree of brand recognition as well. In case the trend

shows that customers go to other pumps and are able to name them would help us determine the

customer share of mind regarding PSO as a company as well as the brand loyalty towards PSO

in comparison to it’s competitors. It is important to gauge the extent of customer loyalty towards

PSO in comparison to it’s competitors because the current level of competition makes it

imperative to identify the weak areas where PSO needs to improve in order to improve the

picture of overall customer loyalty towards PSO.

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DATA ANALYSIS APPROACH

The data obtained from this question has been analysed on the basis of customer preference

percentages.

PETROL STATION n = 100 %

PSO 45 45%Shell 33 33%Caltex 13 13%Other 9 9%

The findings are being presented in graphic form for better comprehension and analysis of data obtained through this question.

The above analysis show a lack of brand loyalty towards Caltex and Shell petrol pumps.

However a significant number of respondents prefer both PSO and Shell petrol pumps. PSO

must come up with strategies which will result in maintaining its loyal customers and in

enhancing customers that go to shell and Caltex. .

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WHY DO YOU VISIT YOUR PREFFERED PETROL

STATION?


The third question was aimed at determining what are the main reasons, which attract the

customers towards PSO. Two specific forms of information were generated as a result of data

collected from this question. The main reason for asking this question was to help identify the

main factors, which play the most important role in customer’s decision to come to PSO or any

other petrol pump.

The answer options were as follows:

BETTER FUEL QUALITY

CONVENIENCE OF LOCATION

BETTER SERVICE

AVAILABILITY OF CREDIT FACILITY

RELATIONSHIPS / PERKS ETC.

URGENCY RATHER THAN PREFERENCE

These options helped in pin pointing the main benefits that customers perceive they get when

they come to PSO. These would be the strong points and strengths of PSO as compared to the

competitors. In case PSO scores low on any of the factor will help us identify the areas where the

attractiveness of PSO is low.

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This question was primarily designed to get an insight into the customer orientation and

perception of customers towards PSO, that is how the customers perceive PSO to be, what they

believe PSO offers them in comparison to what they get form the competitors.

DATA ANALYSIS APPROACH

The data obtained from the sample has been analyzed on the basis of

a) Those customers who rank only one feature as the most important factor that attracts them

towards PSO, those who look for a particular aspect while determining their preference

choices.

b) Those customers, who rank more than one feature to be important, the factors that they look

for while deciding which petrol pump to choose.

FINDINGS

The findings are being presented in following tables, which help in better comprehension of the

data.

Reasons for visiting most preferred station

PSO_____________________________________Better Fuel Quality 4 57%Conv. of Location 7 100%Better Service 5 71%Credit 3 43%Relationship 3 43%Urgency 2 29%

Shell______________________________________Better Fuel Quality 19 86%Conv. of Location 13 59%Better Service 19 86%Credit 9 41%Relationship 7 32%Urgency 4 18%

Caltex

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Better Fuel Quality 3 75%Conv. of Location 1 25%Better Service 1 25%Credit 2 50%Relationship 1 25%Urgency 2 50%

PSO and Shell_________________________________________Better Fuel Quality 9 57%Conv. of Location 8 15%Better Service 9 57%Credit 4 527%Relationship 3 20%Urgency 4 27%

PSO and Caltex___________________________________________Better Fuel Quality 6 60%Conv. of Location 9 90%Better Service 1 25%Credit 2 30%Relationship 1 20%Urgency 10%

Shell and Caltex

Better Fuel Quality 32 809%Conv. of Location 9 60%Better Service 11 73%Credit 4 57%Relationship 3 21%Urgency 1 7%

The below tables clearly depict the picture where we can see that the main reason that attracts customers to PSO pumps is the convenience of location of PSO pumps. All PSO only going respondents agreed to this feature. Besides location PSO pump is also preferred because of better service that the company supplies.. The PSO and Shell going customers believe prefer these two pumps because of their better fuel quality. However PSO and Caltex going customers viewed the convenience of location as the most important factor for going to either of these pumps.

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HOW DO YOU RANK THE OVERALL SERVICE LEVELS YOU GET AT

YOUR PREFERRED PETROL STATION?

PURPOSE OF QUESTION

The aim of this question was to evaluate the qualitative aspect of the customer thought process.

This aspect of customer preferences was necessary to evaluate in order to depict a picture of

where Shell stands in the mindset of the customer with regards to service level.

The customer was asked to compare the service level of Shell with that of any other company’s

petrol pump and rank it on basis of the options provided to the customer. In order to get accurate

answers; a neutral option was also placed so that in case the problem of inarticulate customers is

faced, the entry of wrong and biased responses can be prevented.

The question had the following answer responses:

PROBABLY THE BEST

VERY GOOD

ALL RIGHT, NEITHER GOOD NOR BAD

NOT AT ALL GOOD

PROBABLY THE WORST

The aim was that once the information has been gathered through this question, we would be

able to further analyse the data in case we find that the satisfaction level is not according to the

desired level. In this regard it has been decided that the bench-mark level for satisfactory

performance is OPTION “A” i.e. any response other than the OPTION “A” would be treated as

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an error and would be analysed in order to determine the reason for this error. For this reason, the

data analysis approach is presented below.

DATA ANALYSIS APPROACHIn order to analyse the data based on the above-mentioned objectives, the graphical form of data

depiction has been carried out.

FINDINGSThe customer satisfaction level is being depicted in graphical form

PSO

SATISFACTION LEVEL n = 100

Excellent 32

Good 31

Satisfactory 26

Bad 5

Worst 3

No response 3

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Shell

SATISFACTION LEVEL n = 100

Excellent 29

Good 42

Satisfactory 21

Bad 0

Worst 3

No response 5

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Caltex

SATISFACTION LEVEL N = 100

Excellent 07

Good 23

Satisfactory 40

Bad 09

Worst 02

No response 19

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Q U E S T I O N N U M B E R 6

Which petrol station do you think has the appropriate fuelling time?

Petrol station with appropriate fuelling time:


PSO 18 18%

Shell 12 12%

Caltex 4 4%

PSO and Shell 54 54%

PSO and Caltex 1 1%

Shell and Caltex 2 2%

None 9 9%

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Most reliable fuel company in consumers perception?


PSO 25 25%

Shell 19 19%

Caltex 01 1%


PSO and Caltex 03 3%


All three 01 1%

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Fuel Company giving the best customer care Service?


PSO 25 25%

Shell 19 19%

Caltex 01 1%


PSO and Caltex 03 3%


All three 01 1%

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WORK CONTRIBUTION TABLE

Group Members Contribution %Manzoor Hasan Faruqui 25%Farah Taji 25%Muhamad Ali 25%Turab Hussain 25%

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Questionnaire

________________________________________________________________

1. On an average how many times do you visit a petrol station

_______Daily _______Twice a weak_______Thrice a weak_______Other Please specify

2. Which petrol station(s) do you mostly visit

_______PSO_______SHELL_______Caltex_______Any other

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3. Why do you generally visit the above mentioned stations PSO Shell Caltex

Better fuel qualityConvenience of locationBetter serviceAvailability of credit facilityRelationship Urgency rather than preference

4. How do you rank the overall service level of each of the following (Just Tick) PSO Shell Caltex

Excellent GoodSatisfactoryBadWorse

5. Please identify the status of the below mentioned services

Want it Don’t want it

Use Don’t use

A Oil change OB Air/Tyre facility AC Drinking water DD Convenience stores CE Toilets TF CNG GG Workshops WH Car wash CW

6. In your opinion at which patrol station fueling time is appropriate ?

_______PSO_______Shell_______Caltex

7. Which fuel company is reliable in your opinion ?

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_______PSO_______Shell_______Caltex

8. What is the service level of pump attendants in your opinion at : (Just Tick)

Very helpful Very helpful Very helpfulHelpful Helpful HelpfulUnconcerned Unconcerned UnconcernedUnhelpful Unhelpful UnhelpfulVery unhelpful Very unhelpful Very unhelpful

9. Please complete according to the Legend given below each box :(If usage status is NO then proceed to question 6 )

A B C D E

Usage status

Where do you avail these services

Satisfaction Level

Reasons for not using

Want to use in future

Oil change

Air/tyre facility

Drinking water

Convenience storeCNG

Workshop servicesCar wash

Toilets

Legend Yes(Y)No(N)

Shell(S)Caltex(CX)

Completely satisfied(1)

None(1)Know

Yes(1)No(2)

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PSO(P) Satisfied(2)Neutral(3)Dissatisfied(4)Completely Dissatisfied(5)

now(2)Use Other(3)

Not concerned(3)

10. In your opinion, which fuel company, gives the best customer service.

_______________________________________________________

Personal InformationName: __________________________________________________________Age: ___________ Gender: ___________ Occupation: ______________Cell: __________________________________________________________Email: ___________________________________________________________

CONCLUSION

We test the hypothesis and conclude that Null Hypothesis is rejected and Alternate Hypothesis is accepted, i.e.: Comparative analyses of Oil companies in Karachi are not equal.People prefer PSO over Shell, Caltex and other Oil Companies due to the facilities provided by PSO and their better customer services. This conclusion is drawn from the above facts and figures as well as from the survey duly conducted by filling above mentioned questionnaire from peoples availing the services of these Fuel companies.

RECOMMENDATION

Based on the conclusion and the facts,We recommend that PSO must have to adopt competetive strategies and implement innovative ideas in order to maintain it status.We recommend that PSO must have to:

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Make innovations rapidly

Improve their quality.

Should provide facilities to their customers according to their needs and requirements.

Keep in mind the nature of consumer while offering services.

Should reduce cost so that lower class can also afford it.

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Documents

Pso Research Report