Fri | Nov 27, 2020

PCJ weighing re-entry into retail gas market

Published:Tuesday | December 12, 2017 | 12:00 AMSteven Jackson
The Petroleum Corporation of Jamaica headquarters in New Kingston.

Petroleum Corporation of Jamaica (PCJ) exited the retail gasolene market when it sold off subsidiary Petroleum Company of Jamaica Limited, or Petcom, last year, but now the state agency is wondering whether to get back into the business.

The state overseer of the energy sector has commissioned a study to that effect.

Already, gasolene dealer Trevor Heaven is calling any decision by the Government to re-enter the market a 'bad move', but he also said if the PCJ does get back into the business, it should do so through acquisition rather than a new start-up.

A new operation would further divide an already competitive market, Heaven said.

The PCJ's decision will be guided by a consultant who will produce a Petroleum Retail Market Validation Study in 2018. The study aims to identify market opportunities, products and locations for possible re-entry.

The agency is in the process of recruiting the consultant and has asked for bids.

"The consultant will be required to conduct a thorough market evaluation to determine the viability of the PCJ re-entering the local petroleum retail market; outlining preferred locations, price points, and service offering and capabilities," the tender document said.

PCJ is yet to respond to requests for comment on its review, but one thing it highlighted was that its revenues are down following the divestment of Petcom.

The retail market was the company's highest earning business segment, accounting for 49 per cent of total volumes and 46 per cent of total sales during the 2015-16 fiscal year. Commercial or land fuels was next with 28 per cent of total volumes, followed by liquefied petroleum gas or LPG at 23 per cent, while lubricants trailed at less than 1 per cent, the tender document indicated.

Petcom, which began operating in 1989, focused on the marketing and sale of petrol, lubricants, LPG and industrial land fuels. Petcom was a profitable entity despite operating with vacillating annual returns. It was sold in 2016 to a local company called Phoenix Fuels.

"I do not believe that the Government should have divested Petcom in first place. It was a bad decision," said Heaven, the chairman of Fesco, a local marketing company and operator of 11 gas stations. "I know that a number of executives within PCJ were not mindful or supportive of the divestment," he said.

At divestment, Petcom had 12 per cent market share, with a network of 23 retail service stations and 13 LPG filling plants, and was Jamaica's leading locally owned petroleum marketing company. It ranked fourth overall behind three international marketing companies.

Heaven was involved in an unsuccessful bid to acquire Petcom, which eventually went to Phoenix Fuels.

"I am at least happy it went to a local company rather than a multinational," he said.

The three large multinational players Rubis, Total and Texaco control 76 per cent of the local market. Heaven said the multinationals hold a strong presence in cities and towns where volume demand is highest, while local players are mostly found in the countryside with lower volumes.

Heaven, a past president of the Jamaica Gasolene Retailers Association, who once operated a gas station branded under the Texaco flag, is proposing a consolidation of the market as the best way forward.

"I would suggest consolidation of local entities as the best option. So take ownership of two or three local entities to make one large brand to compete against the three major multinational entities," he said. "I do not think getting into the market as a new company is the way to go."