Twenty-first century oil
Jane Bordenave talks to Harsh Sinha, chief executive of Gulf Petrochem, one of the fastest growing oil trade businesses of the moment.
Gulf Petrochem is one of the most important oil traders and producers of value-added oil products in the United Arab Emirates. Founded by entrepreneurs Ashok Goel and Sudhir Goyel in 1998, the Sharjah-based company now has a turnover of $211 million.
ÔÇ£The promoters worked in the oil and petrochemical industry for many years in their home country of India,ÔÇØ explains Harsh Sinha, the companyÔÇÖs CEO, ÔÇ£then, in 1992, they moved to the UAE and began trading in oil and chemicals. In 1998, they decided to cultivate business and increase sales by setting up a processing plant there and Gulf Petrochem was established in Hamriyah Free Zone, Sharjah.ÔÇØ Over the 10 years that followed the construction of that first facility, three other units were established in the Free Zone. The company now has in operation the original black oil processing plant, a grease manufacturing plant, an oil terminal and a condensate splitter.
In 2007, the organisation realised that the business had the potential to grow from its fairly small size to a large, powerful entity. Sinha was brought into Gulf Petrochem that year, bringing with him 32 years of management experience in various industries. ÔÇ£We brought in Barclays, HSBC and Standard Chartered to secure increased finance for the company, which, along with the establishment of an oil terminal, allowed us to grow dramatically, especially on the oil trading side,ÔÇØ Sinha explains. ÔÇ£We brought on specialist professionals to work in dedicated areasÔÇöthis enabled our business to run in a process-oriented manner.ÔÇØ By the end of the year, the companyÔÇÖs turnover had quadrupled from $26 million to $107 million.
The firm continues to grow and adapt to new markets, reconfiguring the use of its assets as necessary. As an example of this, the business has changed the type of product generated by its condensate splitter to meet the needs of the market. ÔÇ£When the plant was commissioned, the price of some of the finished products we produced, such as naphtha and diesel, vis-a-vis the price of the feedstock condensate oil was very lucrative,ÔÇØ says Sinha. ÔÇ£However, the market has changed and processing condensate is not as profitable, so we have moved ourselves more towards processing other feedstock such as light crude oil.ÔÇØ
In recognition of market demand and potential, Gulf Petrochem has now diversified into bitumen. The company has been trading in packed bitumen for several years already and has now invested in the infrastructure required to receive bulk bitumen through vessels, and to store and transport the product to its customers across the UAE and Oman. ÔÇ£We are also investing in a production plant that processes bitumen into several value-added products such as polymer modified bitumen, oxidised bitumen, emulsions and cutbacks,ÔÇØ says Sinha.
Although the company has different areas of operation and straddles production and trading, Sinha explains that these are all interlinked and depend on one another. ÔÇ£When you look at our move into large-scale oil trading, it was a natural progressionÔÇöwe already had the infrastructure present in our oil terminal and chartered vessels as well as our existing experience. It seemed to us the logical thing to do.ÔÇØ This move did involve an economic trade-offÔÇöas the size of the oil trading business grows, the profit margin in this area gets squeezed. However, not doing so may have stunted the growth of the company as a whole; and Sinha is philosophical about the situation. ÔÇ£As long as we are growing on the top and bottom line and our financial ratios continue to be healthy, weÔÇÖre happy.ÔÇØ
A diversification in business areas isnÔÇÖt the only thing that has put pressure on the companyÔÇÖs profits. Particularly in late 2008 and early 2009, it felt the effects of the recession on its sales but decided to act proactively to mitigate them. ÔÇ£We streamlined ourselves, more or less buying to order to make sure that we were not stockpiling product only for its price to drop, leaving us ÔÇÿholding the babyÔÇÖ,ÔÇØ says Sinha. ÔÇ£We also stepped up our marketing effort to bolster sales.ÔÇØ As the second half of 2009 brought a more or less complete recovery in the market, the firm was able to pull up its turnover. ÔÇ£We grew by 46 per cent in 2009, yet our achieved turnover of $211 million was a tad shy of our target of $218 million. One must view this in the global economic context. Clearly, attaining our pre-recession projections wasnÔÇÖt going to be possible in the circumstances.ÔÇØ
Gulf Petrochem is investing heavily in its future growth and development. By the third quarter of 2011, the company will have completed construction of an oil storage terminal just outside the port of Fujairah. The plot that the business has acquired is half a kilometre wide and when finished, the facility will contain over 400,000 cubic metres of storage space. ÔÇ£While we plan to lease out the majority of the capacity, we would also use the facility for our own trading,ÔÇØ says Sinha. ÔÇ£Leasing will be an important part of the revenue stream coming from this new asset.ÔÇØ
In addition to this large construction plan, the company also has a strategic plan to penetrate two new geographical marketsÔÇöIndia and Tanzania. Sinha explains the decision process behind this. ÔÇ£At the moment, we are based solely in the UAE, but we intend on branching out into other markets. Given our nationality and prior experience in India, making inroads there is a logical progression. We are planning to put up oil terminals and warehousing across the country for the storage of various oils. In addition to that, we are also in talks with some Indian ports with a view to establishing storage terminals like the one in Fujairah.ÔÇØ The move into Tanzania is already underway, with the company having already acquired land in Dar es Salaam on which it will build a condensate splitter.
Gulf Petrochem is a well-established and adaptable business, driven forward by a knowledgeable and future-conscious board. Having changed its modus operandi to help it adapt to the effects of the economic storm, it has proven itself as an important and long-term player in the field of petroleum products. As it grows into new areas, we can look forward to this company becoming not just one of the best-known oil traders in the United Arab Emirates, but in the world.
