Petrol retailers face twin fears

Retail sellers of petrol say the market is being hit by a sliding exchange rate just as competition is set to intensify.

Until recently, petrol sales were controlled by state firms like Myanma Petroleum Products Enterprise. In 2010, it largely exited the retail business, selling all but 12 of its 260 petrol stations to the private sector and allowing other private players to set up shop.

The petrol retailing industry subsequently fragmented, with an estimated 70 private companies now running over 1000 petrol stations, according to figures from an industry association.

Yet state-owned Myanma Petroleum Products Enterprise (MPPE) last week announced plans to re-enter the businesses it had formerly vacated, and form a joint venture with a foreign giant to import, distribute and sell petroleum products. Combined with the weakening kyat, private fuel sellers say they see significant risks on the horizon.

“Our profit margins are getting smaller due to the value of the kyat. We are losing,” said U Win Myint, secretary of industry body Myanmar Petroleum Trade Association.

Although petrol prices in most international markets has declined significantly over the last year as crude oil fell, local prices have not kept pace, in part because the exchange rate has worked to make locally-sold fuel more expensive.

Fuel importers buy petrol from abroad in dollars, but local fuel sales are in kyat, meaning they lose out when the kyat weakens.

Yesterday, according to the Central Bank of Myanmar, one US dollar traded at K1205, a 17.5 percent slide on K1025 at the start of the year. The decline in currency directly affects importers, who must now spend more kyat to purchase the same quantity of fuel.

U Win Myint claimed sudden moves in the exchange rate sometimes leave companies importing fuel above what they can then sell it for at domestic petrol stations.

The exchange rate problem had been exacerbated for much of the year, until Central Bank of Myanmar merged the official exchange rate with the market rate July 13.

Many banks had previously stopped selling dollars, and importers were forced to look elsewhere to buy dollars for imports.

The government had devised a program to make dollars available to fuel importers as well as importers of edible oil, a program which its officials say will continue even though the official and the market rates have now largely converged.

U Win Myint said even with the program to make dollars available, it had been a challenge obtaining enough foreign exchange for imports. “Every day we have a struggle collecting enough US dollars,” he said.

There has been public frustration that local fuel prices have not fallen further.

Myanma Petroleum Products Enterprise officials have used this as a justification for re-entering the businesses it had vacated in 2010

Last week, it announced a tender for foreign companies to enter into a joint venture. The joint venture is to import, store, distribute and sell all petroleum products except for petroleum and liquefied natural gas, partly using existing state-owned facilities.

“We want to extend our facilities and capabilities to an international standard,” said an official with MPPE. “We want to exercise quality control over the domestic market, while being competitive with this joint venture.”

MPPE currently handles the government’s supply of petroleum products and sells the surplus to private companies. With the joint venture, it plans to build into a strong downstream player.

It currently owns four main fuel terminals, 24 small terminals and 12 petrol stations – though before 2010 it had owned about 260 stations.

U Win Myint said local private petrol players still need the government’s support, and will difficultly developing without it.

“It won’t be fair if MPPE is going to compete with local companies in the market in partnership with a powerful foreign company,” he said. “We can’t fight them.”

The MPPE joint venture is not the only plan of a state-owned enterprise to take a more active role in the market. Myanma Petrochemical Enterprise, which, like MPPE, is under the Ministry of Energy, has begun selling locally-made diesel on a wholesale basis. It claims to have 10 million gallons up for sale at a price of K2650 a gallon (K700 a litre).

Although there were few restrictions on purchasing the fuel, by July 7 only about 400,000 gallons had been sold. The sale has been run out of the company’s Thanbayagan petrochemical complex in Magwe Region.

“We don’t exactly know why people are less interested in buying state diesel,” said a Ministry of Energy official. “This price is fair compared with imported diesel, and the quality is also good. The only difficulty we can see is the transportation and storage means it is too far from Yangon.”

The ministry has plans for further sales of locally-made diesel, which it claims will help mitigate price swings. Future sales will depend on the availability of domestic production capacity and the state’s fuel stock.

Yet insiders say it is unclear whether these plans will assist the market.

“The reason companies are not too interested in the state’s diesel is because of only price and quality,” said U Win Myint.

“It looks like a reasonable price, but it is not sure to be as profitable as imports, at about the same price. Consumers also prefer imports rather than locally-made fuel.”

In the mean time, local fuel companies continue to struggle. U Win Myint said fuel companies readily admit to needing to improve their technology, investment and development of facilities.

“That’s part of the reason why prices in the market stayed high when internationally the declined. But we are trying to manage this as soon as possible,” he said.

“But it doesn’t mean the domestic private petrol industry is out of control.

“The government should not consider partnering with a foreign company just because of the price issue.”

Source: Myanmar Times

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