Enoc to build Saudi petrol stations

Emirates National Oil Company plans to develop petrol stations in Saudi Arabia as the loss-making fuel retailer struggles with subsidies at home.

Emirates National Oil Company has signed a joint venture agreement to build about 40 petrol stations in Saudi Arabia at a cost of Dh400 million. Jeff Topping / The National

Emirates National Oil Company (Enoc) plans to develop petrol stations in Saudi Arabia as the loss-making fuel retailer struggles with subsidies at home.

The Dubai-owned oil company, which last year closed its petrol stations in the Northern Emirates to reduce its losses - yesterday signed a joint venture agreement to build about 40 stations in the kingdom at a cost of Dh400 million (US$108.9m).

"We make good returns from the non-fuel business but that doesn't compensate for the losses we have. That's why the strategy for the whole organisation is to explore new markets," said Burhan Al Hashemi, the managing director of Enoc Retail.

The cost of building the stations will be borne in equal measure by Enoc and the Saudi retailer Aldrees Petroleum and Transport Services Company.

The 50:50 partnership plans to open the first stations in the first quarter of next year, initially focusing on Saudi Arabia's eastern provinces.

Enoc has long been posting losses and has issued repeated warnings about its finances.

High international oil prices leave the company exposed because it is forced to sell petrol at the government-mandated price of Dh1.72 a litre. Dubai does not produce enough oil to be self-sufficient. Enoc needs an oil price of about $45 a barrel to break even on its petrol sales, the company's chief executive Saeed Khoory said in a 2010 interview.

As the price of oil hit an average of $107 a barrel last year, the company in October forecast an annual loss of Dh2.7 billion. Crude prices have not relented with Brent trading at about $113 a barrel yesterday.

"As of now, prices are capped by the Government and, as we have not got any direction to change that, we will continue to incur these losses," said Basma Ahmad Essa, a senior manager at Enoc.

Dubai has spent billions keeping Enoc and its rival Emarat afloat, revealing in a bond prospectus in April it had poured a total of Dh5.59bn into the companies by the end of last year to soften the subsidies blow.

But the emirate's debt burden has limited its ability to subsidise retailers and last year the Dubai Government said it planned to reduce subsidies and transfers by 50 per cent to Dh2.67bn that year.

While petrol prices in Saudi Arabia are lower than in the UAE - a litre sells for a mere 45 fils in the kingdom - the subsidy is absorbed by the national oil company Saudi Aramco.

The joint venture can thus expect to sell its petrol with a mark up of 18 to 25 per cent, depending on the type of fuel sold, said Mr Al Hashemi.

Should the first 40 stations yield good returns, the joint venture will aim to continue to expand its business.

"If the demand for more stations is there, definitely we will inject investment to have growth and have more stations," said Mr Al Hashemi.

Enoc's retail arm is currently weighing up moves into two further markets, one in the GCC and one in the wider region, he added.

The company's search for profitability has led it to aggressively grow other business streams.

After opening a lubricants plant in Fujairah this year, it now sells its lubrication products into 50 countries.