Resilient journey of small OMCs

• Balancing regulation and profitability, the dynamics of Pakistan’s petroleum industry
• CCP stands as a stalwart defender of consumer interests, ensuring equitable market conditions
• Changes in policies related to energy efficiency, transportation infrastructure and renewable energy can also impact demand for petroleum products

Interview with Mr. Ahmed Chinoy — Managing Partner of Arch Group

PAGE: Tell me something about yourself, please:

Ahmed Chinoy: I am the Managing Partner of Arch Group and a businessman by profession. My expertise revolves around the fields of textiles, real estate, security investments and poultry businesses. With over thirty years of experience, I have been acknowledged for my expertise in regulatory frameworks and corporate governance within the financial sector of Pakistan. I serve as a trusted advisor and thought leader, championing minority shareholders’ rights, upholding investor protection, and promoting ethical standards throughout the industry. My involvement in pivotal institutions as the Director of the Pakistan Stock Exchange (PSX), Central Depository Company (CDC), National Clearing Company of Pakistan Limited (NCCPL), Pakistan Mercantile Exchange Limited (PMEX) and the Institute of Financial Markets of Pakistan has been instrumental in shaping the capital market landscape.

As a social activist, I have made significant contributions across diverse sectors, including trade and industry, education, healthcare, law enforcement, and human rights advocacy.

PAGE: How would you comment on margins to petroleum dealers and oil marketing companies (OMCs)?

Ahmed Chinoy: In Pakistan, the petroleum industry is heavily regulated by the government, with the Oil and Gas Regulatory Authority (OGRA) overseeing various aspects of the sector, including pricing mechanisms and distribution. OGRA sets profit margins for OMCs and dealers, aiming to ensure fair competition and consumer protection. OMCs in Pakistan often operate on narrow margins due to factors such as fluctuating global oil prices, transportation costs, and regulatory compliance expenses. Despite these challenges, OMCs play a crucial role in ensuring the availability of petroleum products across the country. Petroleum dealers in Pakistan also face challenges in maintaining profitability, as they must navigate regulatory requirements, manage operational costs, and compete with other dealers in the market. Margins for dealers are typically determined through negotiations with OMCs and are subject to regulatory oversight by OGRA.

PAGE: What role are smaller OMCs playing in the sector and how do they survive in the competitive environment?

Ahmed Chinoy: Smaller oil marketing companies (OMCs) in Pakistan play several important roles in the petroleum sector, despite facing stiff competition from larger, more established players. Here are some ways in which smaller OMCs contribute and survive in the competitive environment:

1. Smaller OMCs often focus on serving niche markets or specific geographic areas that may be underserved by larger competitors.  
2. Smaller OMCs tend to be more agile and flexible compared to larger corporations. This enables them to quickly adapt to changing market conditions, customer preferences, and regulatory requirements.
3. Smaller OMCs typically have lower overhead costs and organisational complexity compared to larger companies. This allows them to operate more efficiently and potentially offer competitive pricing to customers.  
4. Smaller OMCs often prioritize personalized customer service and building strong relationships with their clients. They may offer more attentive and responsive customer support.
5. Smaller OMCs may form strategic partnerships or alliances with other companies in the petroleum value chain, such as refineries, distributors, or retailers. These partnerships can provide access to resources, infrastructure, and expertise that smaller OMCs may lack on their own.
6. Some smaller OMCs may diversify their business beyond traditional petroleum products, offering related services such as lubricants, additives, or alternative fuels. By expanding their product offerings, smaller OMCs can capture additional revenue streams and reduce their reliance on volatile oil prices.

PAGE: What contribution does the Competition Commission of Pakistan (CCP) make when it comes to protecting the end-user?

Ahmed Chinoy: The Competition Commission of Pakistan (CCP) plays a crucial role in protecting end-users by promoting fair competition in the market. Here’s how it contributes to safeguarding the interests of consumers:

1. The CCP regulates and monitors market competition to prevent the emergence of monopolies or cartels that could exploit consumers by charging higher prices or offering inferior quality products or services.
2. By encouraging competition among firms, the CCP helps to keep prices competitive, which benefits consumers by providing them with better value for their money.
3. Competition encourages firms to innovate and improve the quality of their products and services to attract consumers. The CCP’s actions help to create an environment where businesses are motivated to constantly strive for better offerings, which ultimately benefits consumers.
4. The CCP engages in consumer education campaigns to raise awareness about consumer rights, fair competition practices, and ways to address issues related to anti-competitive behavior or unfair trade practices.
5. The CCP enforces competition laws and regulations to prevent anti-competitive practices such as price-fixing, market allocation, and abuse of dominant market positions.  

PAGE: Import and consumption trends of crude oil and refined petroleum products fluctuate with economic cycles. How would you comment from the perspective of Pakistan?

Ahmed Chinoy: From the perspective of Pakistan, the import and consumption trends of crude oil and refined petroleum products are indeed closely linked to economic cycles, both domestically and globally. Here are some key points to consider:

1. Economic Growth and Energy Demand:During periods of economic expansion, such as GDP growth, industrial production increases, leading to higher energy consumption, including petroleum products. In Pakistan, economic growth typically drives up demand for crude oil and refined petroleum products as industries expand and transportation needs rise.
2. Global Oil Prices:Pakistan is a net importer of crude oil and petroleum products, so fluctuations in global oil prices have a significant impact on its economy. During economic downturns or periods of global oversupply, oil prices tend to decrease, which can benefit Pakistan by reducing its import bill and trade deficit. Conversely, during economic booms or supply disruptions, oil prices may rise, putting pressure on Pakistan’s economy and leading to higher import costs.
3. Government Policies and Subsidies:Government policies and subsidies also influence the import and consumption trends of crude oil and petroleum products in Pakistan. Subsidies on fuel prices, for example, can artificially lower consumption levels and distort market dynamics. Changes in government policies related to energy efficiency, transportation infrastructure and renewable energy can also impact demand for petroleum products.
4. Infrastructure Development:Infrastructure development projects, such as the construction of roads, highways, and ports, can drive up demand for petroleum products in Pakistan as machinery and vehicles require fuel for operation. Economic cycles often influence the pace and scale of infrastructure development, thereby affecting energy consumption patterns.
5. Alternative Energy Sources:Pakistan is increasingly exploring alternative energy sources such as renewable energy (solar, wind, hydro) to diversify its energy mix and reduce dependence on imported fossil fuels. Economic conditions can influence the pace of investment in alternative energy projects and their contribution to the overall energy supply.