Susco buys Petronas’ retail station network in Thailand

Thailand’s Susco PLC has closed a deal to purchase the retail oil operations in Thailand owned by Malaysia’s state-owned oil and gas company Petronas. The US$58 million deal was signed on October 9, after the Thai oil retailer’s board agreed to the price of the assets held by Petronas Retail (Thailand) and Universal Property, the operating unit of Petronas in Thailand. The agreement, up for approval at Susco’s shareholders meeting in November, is expected to be completed by December, according to Susco Managing Director Chairit Simaroj in a filing to the Stock Exchange of Thailand.
The purchase agreement covers a network of Petronas’ 96 service stations across Thailand, as well as the convenient stores in the retail stations. Susco won in a bidding called by Petronas Retail (Thailand) on September 2. Susco, which has currently a network of 144 filling stations, said that the prime location of Petronas’ service stations supports its strategic expansion plans.
Petronas entered the Thai market in 2005 after buying Kuwait Oil’s Q8 service station network in the country. A company spokesman said that selling its Thai assets is part of its “retail business portfolio rationalization plan in downstream marketing.” Low margins are not the only issue, as the decision to divest itself from the retail business will allow the company to concentrate on other business operations. Petronas still supports its commitment to the growth strategy of its lubricant businesses in Thailand. 
But according to industry sources, Thai regulations drove Malaysia’s Petronas out of the retail business, which underscores the difficult operating environment created by what participants say is the Thai government’s excessive market intervention. The long-standing price regulation has brought down marketing margins of oil companies on their pump sales to around 1.50 baht (5 US cents) per liter, which is 3-4% of pump prices. This is one of the lowest in the world, as described by industry executives in Thailand.
Meager profit margins
The meager profit margins, have caused oil companies, especially international majors, to shy away from entering the Thai market, while a few that have a presence in the country have called it quits. Kuwait Oil sold its Q8 service stations network when it failed to make progress in the market. U.S.-based ConocoPhillips in 2007 sold its 146-outlet Jet station network for US$275 million to state-controlled PTT, the dominant player in the US$30 billion per year retail oil market.
Industry executives in Thailand agree that the marketing margin needs to be raised to make the oil retail business a better proposition. They and other market observers say that the Thai government has maintained its regulation of fuel prices principally to attract votes. This practice of controlling the pump prices of diesel oil at 30 baht (US$1) per liter and providing steep subsidies for LPG and CNG used in the transport sector results in low margins for industry players.
While the Thai government describes the market as “free,” it has often used state-regulated mechanisms, such as imposing levies to finance the Oil Fund. The Oil Fund is taken from levies assessed on premium fuels such as gasoline, which are bought by “rich” consumers. The fund is then used to subsidize products like LPG and diesel fuel, regarded as being for the “poor”. Furthermore, the government has also deployed state-owned PTT, which accounts for about one-third of the country’s fuel business, to curtail price increases even if world market oil prices get higher. When PTT, as a market leader, lowers its prices or holds them steady, other companies have little choice but to follow and watch their tightening marketing margins. PTT and Bangchak Petroleum have joined other retail operators in deploring the government’s market intervention and their tight marketing margins for years.
Non-oil revenues
Long-time players in Thailand including PTT, Esso Thailand (118-year presence), Chevron Thailand (around since 1948) and Bangchak have been able to sustain their retail businesses due to the economies of having their own oil refining facilities in the country. They also offer other services at their stations that boost sales: Shell Thailand, which has a 120-year history in the country, offers specialty premium grade fuels. Others offer oil change and car-care services, and have also put up convenience stores at their stations to make up for the low fuel marketing margins. Industry executives agree that non-oil business has been playing an increasingly larger role in keeping their retail stations afloat. For instance, PTT has 7-Eleven outlets, Esso has Tesco Express mini-supermarkets, Caltex has Tops Daily and Bangchak has BigC. Shell, however, has not been able to make its “Select” convenient stores work. Recently, it partnered with Charoen Pokphand Foods to open CP Food Market super convenience stores in selected Shell petrol stations. The new partnership is regarded as a meaningful synergy between two leaders in their fields. While Shell is a global leader in fuels and lubricants, CP Food Market is the leading brand of super convenience stores in Thailand. CP Food Market is a retail arm of CPF, the company in the forefront of the country’s agricultural-industrial and food industry. The group’s other retail unit, CP All, operates about 6,700 7-Eleven convenience stores in Thailand.
These non-oil revenues have allowed some oil companies, especially PTT, to add stations, many of which have turned into mini-shopping centers.
 
Figures from the Department of Energy Business showed that there were 20,646 service stations at the end of June, up slightly from 20,252 at the end of last year. However, except for PTT, the number of service stations of the four key players Shell, ExxonMobil’s Esso, Chevron’s Caltex and Bangchak, has gone down in 2011 and the first half of this year, partly due to reasons like poor margins and the expiration of land leases.
 
Siri Jirapongphan, executive director of the Petroleum Institute of Thailand, an energy think-tank, said that despite the low margins, the size of the Thai retail oil market offers an attractive opportunity. However, he doubts if newcomers would enter the market at this time, unless government commits itself to deregulation. (October 9, 2012)