Goutam Sen, CEO, National Gas Company explains how the company turned an adversity into an opportunity to emerge as a formidable player in the region and beyond, in an interview with Mayank Singh.
National Gas Company (NGC) started off as a company supplying domestic gas but it has diversified into other lines of business. Can you take us through this process of evolution?
We have tried to reduce our dependence on the Omani domestic market, as this market is controlled by a pricing mechanism which has been in place for the last 20 years. In addition there is a quota system, which means that you cannot exceed a certain number of tonnes per month. So we were constrained in growing locally. To get over such challenges we moved away from domestic cylinders and diversified geographically at the same time. Secondly, we moved into other areas of business. Seven years ago 95 per cent of our turnover was contributed by Oman’s domestic cylinder market, but today it has come down to below 20 per cent. We actually make losses in the local cylinder market, as the prices are controlled while all other costs have gone up, but we still use Oman as our hub. The government gives us gas at a subsidised price, but we are also expected to sell it at a subsidised price, leaving no margin for us.
How have you gone about facing this challenge and reducing your dependence on the local cylinder market?
Firstly, we developed a strategy to move into the industrial business by developing industrial applications for ceramics, glass, construction etc. We pioneered certain engineering systems, like piped gas networks, which use a centralised tank and distribute gas through pipelines instead of putting cylinders in every house. NGC was the first one to do it on a large scale, in Sohar for Saud Bahwan’s Palm Sohar project. We also developed an application for SNG (synthetic natural gas) in 2007 by creating synthetic gas from LPG. We found that this kind of an application had a lot of scope outside Oman and this encouraged us to start marketing it in the Gulf region.
In 2008 we started our UAE operations. We have a plant in Madha, which is an Omani enclave within the UAE near Fujairah and we use it to market LPG within UAE. Overall, we have a full-fledged bulk LPG business in the UAE apart from our project business there. We have taken all the applications that we developed in Oman to the UAE. We are on the verge of commissioning our new terminal in Umm Al Quwain, and this will give us further penetration into the market. We have taken the same technology into Qatar and Saudi Arabia. NGC has commissioned some of the biggest synthetic natural gas systems in the region for big clients. For example AcelorMittal was facing difficulties in getting natural gas so NGC put in place a system that converts LPG into natural gas capable of running their entire plant. NGC’s office in Saudi Arabia is under registration and should be operational in the next two to three months.
How will your newly commissioned terminal in Umm Al Quwain enhance your operational efficiencies?
We are presently located in Madha which is the Northern most tip of the UAE, while our markets are in Abu Dhabi, Dubai, Sharjah and Ajman. Umm Al Quwain is the most cost effective Emirate for us to service these markets. So instead of our tankers going from Fujairah to Dubai or Abu Dhabi, they can go from Umm Al Quwain so we will be able to utilise our trucks more effectively and this will help in cutting down logistical costs. We have also developed some special products. For example, we have a product called Aerosol Propellant. This is an LPG-based product which is conditioned so that it can be used in making perfumes, air fresheners, insecticides and all such sprays. NGC is the largest manufacturer of Aerosol Propellant in Oman and the UAE and we have a manufacturing facility in Rusayl and in Madha.
What kind of a product portfolio does NGC offer its customers?
Apart from LPG cylinders, we do bulk LPG by supplying it to industry, hotels etc through tankers. Within the bulk, you have the traditional bulk LPG which goes through a tank of substantial capacity feeding combustion equipment, but we have also developed a product known as the D cylinder. The D cylinder is positioned somewhere between a cylinder and a tank. There are a number of F&B outlets which have four or five connected large cylinders and these are usually used in an unsafe way. We replace these with a D cylinder, and it can be filled at the site. These cylinders are cost-effective and are well accepted in the market. Apart from the bulk business, we have the Aerosol Propellant, which targets the cosmetic industry. We also have engineering solutions like doing township gas networks.
In 2007, we looked at an application that allowed LPG to be used as a cutting fuel. One can enhance the properties of LPG by adding certain catalysts and then use it to cut metals. Traditionally cutting of metals is done by Acetylene, which is an unsafe product and quite expensive. We went through various trails and hit upon a product called NC+. This product is a replacement for Acetylene. NC+ has been a huge success in Oman and we have franchise partners operating in Qatar, Saudi Arabia and Malaysia, and are in the process of adding more countries soon. The model that we use is very much similar to the Coca Cola model wherein we provide the additives, brand name and the technical expertise to sell the product, while all the local investments and sales support in that country are provided by our partners.
NGC has a reasonable large operation in Malaysia. How did you get into that market and how is your performance in Malaysia?
In 2011, we decided to venture out of the GCC and started looking at the high growth markets in South East Asia. At that point we found that Shell was divesting their business in Malaysia and Philippines and we bid for those businesses. Eventually, we focused on Malaysia and won the bid. Last year, we took over Shell’s LPG business in Malaysia. According to local rules, we needed to have a local partner and accordingly we divested a part of our stake to a local partner, retaining 60 per cent stake. There was a complete migration of Shell’s distributors and staff in November 2012 and from July 2013 we started making profits. With this our turnover is expected to increase over six times. Today, we are the second largest LPG player in Malaysia after Petronas and we control around 25 per cent of the market with over 1.5 million cylinders. We have three bottling plants in Malaysia and we service almost the entire country.
What is the company’s projected turnover for year 2013?
We expect our 2013 turnover to be in the range of RO25mn in Oman, but we make a loss of RO70,000-RO80,000 in the local market, as our costs have gone up and most of our profits are coming from other geographies. At the group level we should be around RO90mn, which is consolidating all our companies with profits coming in from our overseas operations. We have been engaging with the government to revise the price of gas and it seems that we are close to a solution. Recently we got to know that a review is underway regarding pricing. So things seem to be positive and we are confident of finding a value for our shareholders from the domestic operations.
How kind of a competition does NGC face in the various markets that it has ventured into?
In the UAE we were able to succeed as we brought in a new expertise. LPG is handled by two kind of companies. They are either government players who are not inclined to project gas as a non-domestic product. In addition, there are multinationals like Shell and Exxon Mobil, for whom LPG is one of the products in a large portfolio. They do refining, upstream, retail and therefore LPG is not a focus area for them. Due to the challenges that we faced in Oman we were forced to change the game and to develop new applications which we used to differentiate and enter new markets. In Malaysia, more than 85 per cent of our market share is in the domestic segment, but our intention is not just to compete in the domestic market. We will retain our position in the domestic market but NGC’s growth will come from new initiatives – so we will expand the market using new applications.