Good report: (from left) Mohd Ibrahimnuddin with chairman Md Arif Mahmood and CFO Norliwati Abdul Wahab checking out Petronas Dagangan’s annual report after the company’s AGM
KUALA LUMPUR: Petronas Dagangan Bhd (PetDag), which has the largest chain of petrol stations in the country, has no qualms if any of its dealers decide to drop the pump prices of the fuel lower than the weekly rate set by the Government.
However, the dealers of the stations in question would need to seek the approval of the Domestic Trade, Co-operatives and Consumerism Ministry, and also discuss with PetDag about the matter.
PetDag managing director and CEO Mohd Ibrahimnuddin Mohd Yunus said that so far, none of its dealers have approached it to sell the fuel at the pumps at lower prices.
“If dealers decide to sell at a lower price, they are responsible for their margins and not us. It is all tied up with sales volumes and margins,” he told reporters after PetDag’s AGM yesterday.
He said the price-setting mechanism does not impact PetDag’s earnings.
However, the company was looking at ways to manage inventory better with the weekly pricing system.
“Last year, we cut our inventory day to four to five days from six a year earlier. We are looking to cut our inventory days further, especially with higher volatility in world crude oil recently,” said PetDag chairman Md Arif Mahmood.
The weekly fuel price-setting mechanism was introduced three weeks ago by the Government to replace the previous method of fixing the price on a monthly basis.
Under the system, the weekly price is set based on a weekly average of global crude oil prices.
The practice of setting the pump price of petrol on a weekly basis is not new. However, most countries only set the ceiling price and leave it to the respective petrol stations to set their own price. In such instances, there are some petrol stations that set a lower price.
Countries such as Belgium and China use the price ceiling regulation, where the Government provides the maximum prices for various grades of fuel. However, the retail petrol stations are free to determine their selling prices as long as they do not exceed the ceiling.
In Malaysia, the prices of petrol and diesel had been placed on a managed monthly float system since Dec 1, 2014, following the removal of fuel subsidies. Since April this year, the ceiling for the fuel price has been decided under a weekly pricing mechanism.
Md Arif said that the weekly fuel price mechanism would not have any impact on PetDag’s earnings.
“It is not a new mechanism that is giving us more money. It is still under the same managed float system. The only difference is that this is just a shorter timeline and is better when it comes to managing the volatility of global crude prices,” he said.
PetDag has the largest petrol station network in the country with more than 1,000 stations nationwide.
For this year, the firm has allocated about RM300mil to RM500mil in capital expenditure for the refurbishment of its stations, upgrading works and new stations.
“For this year, we will be selective in setting up new stations and focused more on upgrading our existing stations and Mesra stores,” Mohd Ibrahimnuddin said, adding that the group was focusing on improving its cost and increasing its sales volume in both fuel and non-fuel businesses.
PetDag saw its net profit grow almost 20% to RM944.6mil in the financial year ended Dec 31, 2016 from RM789.96mil a year earlier.
The firm wrapped up 2016 with a record profit before tax of RM1.2bil, an increase of RM129.9mil as compared to the previous corresponding year.
“Despite slower domestic demand growth and dampened consumer sentiment in Malaysia, we have remained resilient and I am pleased to share that PetDag has registered a record financial performance,” Mohd Ibrahimnuddin said.
“This signifies that the strategies that have been undertaken since 2015 are effective in the face of external challenges.”