Egypt’s lubricants market

In 2014, Prime Minister Sherif Ismail committed USD 14.5 billion to expand the downstream sector in Egypt over a period of five years. How is it going so far?
It’s a wild phase for the downstream sector. The Egyptian market is very big, with a high consumption rate and increasing demand every year, consistently exceeding the demand range estimated by the government.
These investments would be best aimed at the refining companies, as Egypt still imports products such as diesel and sometimes petrol and fuel oil. The downstream sector will need more refined petroleum products just to cover the local demand of these products.

What role do fuel subsidies play in meeting the needs of Egypt’s downstream sector expansion?
Actually, the subsidy was always half of the total price of fuel. I think the government is feeling the tension to change from a subsidies market to a free market. This hopefully will happen soon. A huge amount of money is lost due to subsidies. I think with the low prices of energy now, it’s better to just go with free market.
If you have the subsidy for a certain level of people and free market for others, things will become very difficult. This will create an overflow for the black market again. So, it’s better not to divide it.

How can a company secure the right customers in this competitive market?
To keep them, after-sales service is a key element for lubricants. You have to be in touch with them, you have to visit them, you have to be ready in case they have a problem. In Egypt, when you are successful, people will approach you. If you are not successful, people will try to avoid you.
You need to keep a clean, tight, safe, good looking service station. There isn’t more you can do in the fuels, but in lubricants you can do after-sales service.

Is expansion through acquisition the best way forwards?
You can start collecting profit from the market almost immediately. The most difficult part in Egypt is getting land to build a station. Getting land in a prime location is very difficult. You have to have all the permits required for it, which takes some time.
When you acquire it, the infrastructure is already yours. The next day you have your brand. You can start selling your products immediately. But building from scratch is very difficult. You can build 200-300 separate stations, but none of them will be in a prime location. The prime locations are mostly occupied already, because we talk about locations inside the big cities.

Why do some companies do better than others?
It all comes down to strategy. Why has Libya Oil achieved what we have achieved? Firstly, we keep a close eye on quality. That’s number one for us. We use the best oil and additives.
Secondly, our price is below the average price of the premium companies. We give companies an opportunity to try our products free of charge so they can see the results.
We have a protocol signed with The Arab Contractors, the biggest construction company in Egypt. They use the heaviest, most difficult equipment. We’ve been working with them for four years now. This includes all their activity: tunnelling, heavy equipment, roads and bridges. All of this equipment uses our lubricants. This reference gives confidence to all other companies or industries we approach.
We have now partnerships with more than 60 industry units: cement, food, steel, you name it! We have more than 60 companies in our portfolio, most of which are after 2012.

How are you able to charge a lower price than of the competition at the same level?
We are giving away some of our profit margins. That’s all. We are happier with a smaller margin than the premiums. The materials are the same. The costs are the same for us and for them. Lubricants are set at international prices, and the additives’ prices are well-known. But because some companies have established strong brand names and have been in Egypt for a long period now, they are asking for higher prices. We ask for a high price, but less than our competitors.
The Egyptian market is price-oriented in the low grades segment but in the high grade segment, it is not. It’s quality oriented. When we talk about synthetic or other high grades, it’s quality oriented. For the lower grades, yes, it’s the price. We have to fight for a good price.

What is your main area of growth in Egypt?
The main area of growth in Egypt is lubricants because they are not controlled and not a part of the distribution quotas given by the Egyptian General Petroleum Company (EGPC). They are a part of an open market without limits on how much companies sell.
The quotas depend on the historical data based on distribution by volume. Every year the EGPC reviews the trends on demand growth and they set the quota based on that. It uses historical volume for each segment and each company within the segment. Quota increases are based on growth.
It’s a very aggressive market and the competition is high. There are more than 15 majors here plus imported final products, or other ready products that are competing for market share. It is really a very difficult market, but we managed to jump from 6,000 tonnes of lubricants in 2012 to 18,000 in 2015. We are the only company to do that. This is a very big achievement for us.
Another promising area for growth is the bunker market. This is being reviewed now by the government and the EGPC and the Ministry of Petroleum. There will be changes in the regulations soon and, based on the new regulations, there could be big opportunities in the bunker market in Egypt. The government will open the sector to more free-market regulation. Instead of control by EGPC, the market will be free and companies will be able to control their supply and demand. It is more complicated than that, but that’s it in principle.

What role does Egypt play in your operations?
Egypt is an exporting centre for East Africa. We have some affiliates but they don’t have blending plants, so they import their lubes from us. In Egypt, 70-80% of the lubricants and oils are from the local market, from the local refineries. This makes the price more competitive than others. Our prices are cheaper because we own blending plants in Borg El Arab, near Alexandria, which opened in 2012. We have half shares with Total. It’s the most modern blending plant in the Middle East.

What are your activities in markets outside Egypt?
We export lubricants to Ethiopia, Eritrea, Sudan, Djibouti, Bulgaria, Jordan, Greece, and Libya from Egypt.
We have an unfinalised contract with Algeria, Chad and Libya. We hope to export huge quantities to Libya. The Libyan market has a lubricant shortage. We have reached an agreement with Libyan companies to export a huge quantity of lubricants. At least 10,000 tonnes. We are finalising the agreement with them now.
In addition to that, we are starting negotiations with a company in Jordan to export oil there. We have sent the price and the samples and are waiting for the results. Our brand is becoming well-known and many people are approaching us. Algeria and Greece, they are approaching us. They are coming to us based on the good name and the product we have now, because, as you know, we are present in more than 20 countries in Africa, including Tunisia, Algeria and Kenya.
We have 22 affiliates in Africa, all through Libya Oil. We bought several ExxonMobil and Shell affiliates in all these countries along with their facilities. We expand through acquisition and this is the best way to expand in our field.