Operations
As a progressive company moving rapidly towards infrastructural enhancement, Operations is considered a key area especially in view of PSO's huge infrastructure of 9 installations and 23 depots dotted across the country from Karachi to Chitral.
To further improve operational efficiency and work environment, the concept of Operation Quality Team (OQT) was introduced and implemented to ensure ownership of responsibilities regarding cleanliness, repairs, maintenance and health, safety and environment.
PSO is the only oil marketing company in the country to appoint international surveyors for calibration of tank truck units at key operating locations. The calibration is carried out as per API standards and labeled with safety stickers having hologram and bar coding.
Four storage tanks of 25,000 tons each at Keamari have been rehabilitated and radar gauges installed on 34 tanks nationwide to minimize stock losses, while the remaining key installations/depots are also in the process of being similarly equipped.
In order to further rationalize operational resources, the company closed down its operations at Morgah and Khuzdar depots. To ensure improvement in HSE standards at installations/depots, several HSE (Health, Safety & Environment) equipments have been installed to periodically monitor HSE performance.
For the first time in Pakistan, two tanks of 30,000 tons storage have been installed with floating roofs. These have been dedicated to Bosicor and the first receipt of Crude was taken successfully on August 21, 2003.
In FY04, an agreement was signed with Bosicor for effective handling of Naphtha at Keamari Terminal - "B" and Tank Truck Crude Oil loading at Zulfiqarabad Oil Terminal for Attock Refinery Limited (AKL). A similar agreement was signed with British Petroleum, which would generate additional earnings for the company.
Furthermore, a state-of-the-art Lube Oil Manufacturing plant has been commissioned at Korangi, featuring a specialized pre-engineered building with clear blending system and pelletized loading arrangement. The company is at present conducting necessary due diligence on new White Oil Pipeline Project from Machike to Tarujabba in collaboration with ARL.
Demand & Growth Rate
The international environment witnessed a relatively benign global economic environment in FY04 after almost three years of weak and fragile growth in the world economy.
The business environment in Pakistan, however, gained momentum during FY04, mainly due to an encouraging growth in industrial production and a positive upsurge in investment. This depicts an encouraging trend for the future also.
The industry consumption of White Oil, the major determinant of economic growth, recorded an impressive increase of 6%, while Black Oil registered a decline of 43% due to product substitution regime in line with GOP policies. The overall POL consumption in Pakistan during 2004 was 14.2 million tons, 14% lower than that in the preceding year, primarily owing to a 44% decline in consumption of Fuel Oil (FO).
In 2003, FO consumption had witnessed an unprecedented drop of 15%, followed by massive decline of 54% during the first six months of 2004 over prior year period owing to increased gas usage in dual-fuel power plants and inter-fuel substitution from oil to gas.
Consumption of Mogas (HOBC High Octane blending Compound + PMG Premier Motor Gasoline) increased by 15% compared to a modest growth of 1% in prior year. The main determinant contributing to this increase was a significant growth of 57% over last year in the automobile industry due to reduced interest rates, persistent inflow of home remittances and the cheap and easy availability of car financing schemes.
HSD demand also grew by 5% versus 2% in 2003. The growth is primarily due to enhanced economic activity, especially in the agriculture sector, owing to attractive consumer leasing options.
The demand of JP-1 experienced a growth of around 10% compared to 22% of last year. This was brought about by an increase in passenger and air traffic capacity of PIA as well as enhanced Afghan exports.
Kerosene, as expected, showed a decline of 17% due to availability of cheaper alternatives, such as natural gas and Liquid Petroleum Gas (LPG). Similarly, Light Diesel Oil (LDO) also showed a decline of 9% due to usage of HSD-hased engines, which are cheaper than the pumps consuming LDO.
During Despite the ever-declining Kerosene demand, PSO managed to increase its market participation to 74% by gaining 2% share over prior year. In FY04, P50 managed to maintain its market share in JP-1 at 64%, excluding exports. PSO sales grew by 14% in line with industry growth.
However, in Black Oil, P50 sales declined by 15% and 47% in LDO and FO respectively. The significant decline in FO sales was mainly because of power sector’s conversion to gas, where PSO has long-term Fuel Supply Agreements (FSAs) signed with Independent Power Producers (IPPs).
In FY04, PSO continued to offer higher value to its customers; another 287 New Vision stations were added during the year, bringing the total number of these outlets to 1,000 at an average construction rate of 1.8 days per outlet. The Company-owned Company-operated (CoCo) outlets network was also expanded to 36 during FY04. The CNG facility was offered at another 32 stations bringing the total number to 105.
Market Share
Despite a substantial volume drop in Fuel Oil by 2.8 million tons, i.e. 43%, PSO retained its market leadership and sold 8.7 million tons of POL products. In White Oil (Mogas, Diesel, Kerosene and Jet A-1), despite stiff competition from existing and new players, PSO successfully maintained its market share at 59%, while in Black Oil its share declined by 46% in line with industry drop. This was mainly due to power sector's continued conversion to gas, improved hydel generation and availability of cheaper fuels in industrial sector.
During FY04, PSO gained 1.6% market share in Mogas thus registering a substantial growth of 19% against industry growth of 15% over last year.
Sales of 50,700 tons were recorded in June 2004 when PSO secured a market share of 46.4%. These were the highest-ever sales achieved in Mogas since the inception of the company.
PSO HSD sales also witnessed growth of 6% against industry growth of 5% over prior year. As a result, company's market participation increased to around 60.5% compared to 60% recorded in the preceding year. During November 2003, PSO achieved the highest-ever market share of 64% in HSD in any single month during the last several years.
However, in Black Oil, P50 sales declined by 15% and 47% in LDO and FO respectively. The significant decline in FO sales was mainly because of power sector’s conversion to gas, where PSO has long-term Fuel Supply Agreements (FSAs) signed with Independent Power Producers (IPPs).
Distribution
PSO, being a flagship company, carries a strong and wide logistics network to cater 68% of total country's demand of POL products timely and efficiently, from Karachi to the remotest areas of the country, through 29 storage points spread throughout the country. At present, most of the POL product movement is carried through self-owned and outsourced tank Lorries and rest through tank wagons and pipelines. Recently the adequate availability of alternate fuels like gas has drastically reduced the demand of Furnace oil by 50%, which has resulted in surplus fleet of tank Lorries and tank wagons.
PSO has vast infrastructure of 9 installations and 23 depots from Karachi to Chitral and a supply chain supported by 8,500 strong tank-lorry fleet and 3,800 railway wagons.
Pricing Strategy
The oil marketing companies are operating in Pakistan under a pricing mechanism provided by the government. All matters relating to oil, gas including CNG, LPG & LNG and minerals at the national and international levels and pricing of all kinds of petroleum and petroleum products are under the control of Ministry of petroleum and Natural Resources (Govt. of Pakistan)
Key Competitor
Promotion StrategyCompany is using different types of promotion strategy as Electronic media, Print Media, Sticky Cards on Wind Screens of the vehicles Billboards and Sponsorship Sports, Traffic Signals, Direction Boards Etc. Company has also built recreational parks in Islamabad and other cities of the country. Company is also creating awareness for traffic safety and heritage preservation through “Karavan Karachi” and construction of modern well for rural empowerment and helping the handicapped to lead the normal life.
Green XL Plus Diesel
The constant evolution and development that has been PSO hallmark continues into the 21st century as well. Along with its areas of core competence, PSO in recent years has placed a growing emphasis on health, Safety & Environment (HSE). That is why PSO has once again taken the lead in launching for the first time in Pakistan Green XL Plus Diesel, which contains Greenburn Combustion Technology, developed by Ethyl Corporation, USA. PSO has exclusivity to the Combustion Technology' fuel additive for use in diesel in Pakistan.
Demand & Growth Rate
Due to introduction of Green XL Plus Diesel, the company has differentiated its product and gained substantial volumes in a highly competitive market. Despite the ever-declining Kerosene demand, PSO managed to increase its market participation to 74% by gaining 2% share over prior year. In FY04, P50 managed to maintain its market share in JP-1 at 64%, excluding exports. PSO sales grew by 14% in line with industry growth.
Application of Balance Scorecard
Like PSO's other products, Green XL Plus Diesel will make a difference from Karachi to Khyber because the company will be distributing this new product through to the entire network of its retail outlets so that the benefits are passed to all PSO customers. Tariq Kirmani, Managing Director, Pakistan State Oil, and Mike Lewis, Managing Director, Ethyl Petroleum Additives Limited, Europe, inked a multi-year agreement at PSO House on February 9, 2004.
Ethyl is a leading global supplier of additives to the Oil Industry. Based in Richmond, Virginia, USA, with offices worldwide, the company develops technology that allows engines to run cleaner, smoother and longer.
Let’s discuss Green XL Plus Diesel within the criteria of systematic approach by applying three analytic tools;
(1) Buyer utility map
(2) Price corridor of the mass
(3) Business model guide
Buyer Utility Map
The above Utility Map shows the PSO has added three new utility levers at the same stage by launching Green XL Plus Diesel;
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By using the same stage PSO has increased 20% Productivity, because high-speed diesel covered 10Km Per liter but Green XL Plus Diesel covers 12Km Per liter.
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The maintenance Expense of the engine has decreased 30% because the company has developed a technology that allows engines to run cleaner, smoother and longer.
- At PSO, preserving and nurturing the environment is a priority like quality, quantity, safety and service excellence. That is why PSO has adopted Greenburn Combustion Technology, by Ethyl Corporation and has decreased environmental effect by 46% by reduction Lead in diesel.
The Price Corridor of the Mass
The PSO has targeted the largest segment in the oil industry, the largest group of people lies in the diesel market, so PSO has brought innovation in high speed diesel by understanding the price sensitive people who compare the new products with a host of new products and the services offering by companies outside the group of traditional groups.
Same Form Same Function The company has targeted the people of group who is using diesel for transportation and to get the competitive edge company has introduced Green XL Plus Diesel at the price high speed diesel Rs 26.
The Business Model Guide
To deliver the new idea profitably without changing the price of Green XL Plus Diesel by partnering Ethyl Petroleum Additives Limited, Europe. PSO has signed a contract with Ethyl Petroleum Additives Limited, Europe, at PSO House on February 9, 2004.
Application of the Brand Report Card on PSO
- The brand excels at delivering the benefits customers truly desire
PSO is trying to uncover the unmet consumer needs and wants through R & D. PSO emphasizes on health, Safety & Environment (HSE). And to meet our customers unmet environment friendly need in Petrol and Diesel PSO has give the Green XL. And they are trying to improve their quality. PSO is also taking feedback from customers to improve their products. So customers have a good image about PSO.
- The brand stays relevant
PSO Green XL gives their customers more productivity through extra mileage, better engine performance and preserving and nurturing the environment. PSO Green XL Plus Diesel, which contains Greenburn Combustion Technology, developed by Ethyl Corporation, USA. Now PSO also providing the facility of Credit cards and Debt cards to their customers.
- The pricing strategy is based on consumer’s perceptions of value
Pricing of the petroleum products are decided by the government. But PSO is trying to give their customers extra value added services to their customers in this standard price.
- The brand is properly positioned
The PSO brand Green XL plus Diesel has created No. of parity points from their competitors, like more productivity, extra mileage, less wear and tear of engine but others are not providing these values to their customers this has created a unique perception in the minds of customers.
- The brand is consistent
In all adds of PSO the Green XL plus diesel is sending the same message of preserving and nurturing the environment. So they are not trying to make conflict messages to the customers.
- The brand portfolio and hierarchy make sense
PSO brands are holding individual niches in their products because they are providing customers the environmentally green climate and due to these qualities PSO sales have been raised over a period of time and it’s still increasing day by day by excellent marketing campaign.
- The brand makes use of and coordinates a full repertoire of marketing activities to build equity
Every product has its different packaging and different marketing this does not make mixture of different products and customers know about the usage and abilities of different product.
- The brand managers understand what the brand means to consumers
Green XL plus is new product in the market and managers are creating the image of this product as environmental friendly product.
- The brand is given proper support, and that support is sustained over the long run
PSO has Green XL plus Diesel is new product in the market after a long study but it has created an image of keep environment green. But company has not change its marketing plan.
- The company monitors sources of brand equity
The company has its R & D department through which they have conducted a survey and they have found that their brand has got success in the market and now they have taken very effective steps to further support and promote the image of the brand in the minds of customers. For this purpose they have introduced cards that carry the brand name & logo of the product and they have distributed these cards to their customers to paste these cars on their windscreen and have specially designed the main billboard on their outlets.
Porter Analysis
Competition New Entrants
The market share of PSO has reduced from 74% to 68% by the introduction of TOTAL OIL Company in the recent years. In 2005, Ash Dat Oil Company is also commencing its business and certainly it will cater some market share but PSO is making innovative steps to meet this challenge, as company has acquired paper less information technology system SAP, to on time delivery to its customers.
Competition from existing Competitor
Pakistan State Oil Limited is facing its competitors and to meet the challenges its competitors PSO is taking innovative and value added steps for customer convenience and value addition. To meet this threat by the competitor, company has acquired paper less information technology system SAP, to ensure on time delivery to its customers.
Threat of Substitute
Kerosene, as expected, showed a decline of 17% due to availability of cheaper alternatives, such as natural gas and Liquid Petroleum Gas (LPG). Similarly, Light Diesel Oil (LDO) also showed a decline of 9% due to usage of HSD-hased engines, which are cheaper than the pumps consuming LDO. To meet the challenges of substitute, PSO launched Green XL Plus Diesel using ‘Greenburn Combustion Technology’. The new improved diesel not only helps keep the environment cleaner and greener by notably reducing smoke and carbon emissions, but also improves engine performance by preventing wear and tear thus resulting in lesser maintenance costs, fuel economy and more engine power. Despite the ever-declining Kerosene demand, PSO managed to increase its market participation to 74% by gaining 2% share over prior year.
Bargaining Power of Buyer
In a competitive environment, the concern is how to increase market share and to retain its current customer in highly competitive market because customer always try to optimize his from the product. PSO is also facing competition in the industry, so to retain its customer, the company is taking all the possible steps for customer convince and benefits, for example Credit cards, Debt cards, Kissan Card, e-Marketplace, New Vision Station etc.
Bargaining Power of Supplier
Another challenge that PSO is facing is the bargaining power of the supplier, in some extent with respect price; the supplier has no power to affect the price. But on the other hand suppliers offer different facilities to increase its market share, for example SHELL & TOTAL has advantage over PSO because of wide and furnished outlet. But to meet this challenge, PSO has opened 1000 New Vision Station in different areas of the country.
SWOT Analysis
Strengths
PSO has a team of well-qualified professionals who are dedicated to achieve the tasks assigned to them most efficiently. The Company claims that their people are their strength. The company has customer-focused approach to decision-making and believes in teamwork to accomplish tasks and encourage empowering team to take timely decisions. They work as a team to achieve their objectives.
PSO is the largest Oil Marketing Company in Pakistan with Extensive storage capacity, almost 81% of total national storage, i.e. around 860,000 metric tons.
- Widespread depots and divisions
PSO has vast infrastructure of 9 installations and 23 depots from Karachi to Chitral.
PSO has vast infrastructure of 9 installations and 23 depots from Karachi to Chitral and a supply chain supported by 8,500 strong tank-lorry fleet and 3,800 railway wagons.
PSO has 4,400 retail outlets across the country including 1,000 New Vision outlets commissioned within five years.
Internal Factor Evaluation
Customer Value Analysis (CVA)
Customer value Attributes
Availability
PSO has extensive storage capacity, almost 81% of total national storage i.e. around 860,000 metric tons. And, PSO has a large number of outlets, 4400 around the country to ensure availability to all part of the country.
Engine Life
PSO have Greenburn combustion technology with special Greenburn additive having DFA (Diesel Fuel Additive) and combustion improver technology which help engine clean and the longer engine life of the vehicles.
Environmental Friendly
PSO’s health, safety and environment (HSE) policy adequately reflects the company’s commitment to environmental protection and greener work practices as a stated institutional priority. Introduction of the Green XL Plus Diesel is also an attempt to keep the environment clean and healthy.
Cost Effective
By the launch of Green XL Plus Diesel PSO is offering its customers more productivity and Ethyl Technology has decreased maintenance expense of the engine.
Extra Services
In a high competitive market customer always wants value maximization. So, to meet the expectations of the customers, companies are trying to extra benefits and services to its customers. PSO is also offering value added benefits and services to its customers. Stop-shops, e-marketing place, Credit cards, Debt cards, Kissan Cards New Vision Station are some examples of value added benefits.
Assigning Qualitative Weights
3. Customer Value attributes with respect to Key competitors
Financial Results
PSO’s sales revenue during FY04 stood at Rs. 195 billion. Despite the massive decline in FO sales volumes to the tune of 2.3 million tons, the company earned an all-time record profit before tax of Rs. 6.3 billion, while profit after tax rose to Rs. 4.2 billion, up by 4.5% from prior year. Had the company sold the same FO volume as in the preceding year, it would have recorded much higher revenue as well as profits.
Based on this remarkable performance, the company announced a final cash dividend of Rs. 7.5 per share (75%) to its shareholders, resulting in total dividend of 175% for the whole year, as against 160% cash dividend declared during the preceding year.
The total cash payout comes to an unprecedented amount of Rs. 3.0 billion as compared to the preceding year’s cash payout of Rs. 2.7 billion (an increase of Rs.300 million). The Board of Management recommended that the net profit of Rs. 4.2 billion earned during FY04 along with the un-appropriated profit of Rs. 6 million brought forward from the preceding year be appropriated.
The company spent Rs. 2096 million during FY04 with continued expansion in new vision network in enhancement in infrastructure along with sizeable expenditure on information technology. It also introduced efficient fund management system and achieved substantial reduction in financial charges.
Bibliography
Mr. Wajahat Ali Syed Sales manager PSO Lahore,
Mr. Waleed Khalid Sales Officer Industrial Consumer PSO Lahore Mr. Syed Shafqat Raza Bokhari Terminal Manager and Account Officer
Annual Report 2004
http://www.psocl.com/customer_services/industrial_consumer.asp
