TBY talks to Bashir Bassatne, Chairman of Hypco, on the public-private dynamic, sector drivers, and reform proposals.
TBY How have needs changed in Lebanon for petroleum products and where is the demand now?
BASHIR BASSATNE In terms of the public sector there is still a demand for fuel, and for gas oil for power factories. But in terms of the private sector for diesel, the main shift was in the early- to mid-2000s, when some of the sector moved more from gas oil to diesel with the introduction of EN 590 European specification diesel. Diesel is still not very popular, and its use in passenger cars is forbidden. Gasoline is still the main player in terms of automotive usage.
How does the price ceiling affect the profitability of distributor companies?
The profitability of the market is an ongoing debate. In the eyes of the public market, the companies are very profitable. It is a stereotype that has been in the market for a very long time, but it is actually false. We prepared a study in the past with PwC, and it went into the accounts of the companies, checked the costs and expenses, and realized the margins are currently inadequate. It has actually made a suggestion to the government to increase the margins, but there is no movement on this right now. The margins of the service stations were LBP900-1,000 per 20 liters and as per under the proposal of the study, it would increase to LBP1,600 per 20 liters. Therefore, it has increased the margins of service stations, but the margins of the distribution companies have not increased.
What is the government’s stance on oil subsidies and how effective do you think this option is?
It is reported that the government has reached an agreement with taxi drivers to subsidize some of their consumption. In my opinion, this is a wrong approach. The tax on oil products in Lebanon is not high, and the overall price of gasoline and diesel in Lebanon is not high relative to countries in the region. Maybe Lebanon is among the cheapest in terms of absolute value, but when you compare it to the standard of living, or minimum income, it becomes very high. The answer is not to decrease the price or take out the tax, but to raise the minimum wage to try and boost the economy—increasing purchasing power and the standard of living and creating employment is a more effective way.
What is your capacity and service station strategy?
We hope to expand on two different levels. Firstly, we’d like to increase our network in the country. Secondly, we’d like to increase the volume per station because we believe that Lebanon is oversaturated with stations. The number of stations per capita is one of the highest in the world. The last study showed 2,200 service stations in Lebanon, whereas in Dubai, which is twice the size in regards to population, has around 350. The cost is much higher for us because you need more pumps, signage, stations, and land. The same service could be provided by far fewer stations.
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