www.gulf-news.com Dubai |By C. L. Jose | 15-03-2003

Hussain SultanEnoc is synonymous with Hussain Sultan, or vice versa. Hussain Sultan is the group chief executive and board member of Enoc and Eppco, and a director of nine subsidiary or associated companies of the Enoc Group.

He is also the executive chairman and CEO of Dragon. He is the man behind the growth story of Enoc — the energy behemoth which has now expanded to more than 26 subsidiaries and a couple of other associate companies. The number doesn't stop here. Hussain Sultan has drawn out plans for the diversification of the group, though confining itself into the energy sector itself.

All look at Hussain Sultan to see what he has got up his sleeves to combat the 'Catch 22 situation', where he is forced to sell fuel at a fixed price, irrespective of the soaring crude price. His answer is diversification. No wonder Enoc is looking at newer countries and newer businesses every other day. The group has already gone into more than 23 countries with its lubricants. It plans to expand in a couple of other countries with its storage business as well.

As everyone knows, the group now holds 70 per cent stake in Dragon — which runs upstream oil business in the CIS. With expanding international activities across East Africa, Central and South Asia, the Levant and the GCC, the Enoc Group is targeting the wider region to tap potential business opportunities. Hussain Sultan is not a person who believes in making noise and doing less — rather, the other way round. Here are excerpts from an interview Gulf News had with him recently.

How was the year 2002 for the Enoc Group? It was a challenging year. However, it was not a bad year for the whole group, although certain divisions of the group had problems, especially the retail business of Eppco. In fact, Eppco is itself a group with retail as its primary arm, but it also has diverse business interests, from storage to aviation, for example.

Can you please compare the year 2002 with 2001? The year 2002 was worse than the previous year. However, I cannot reveal the figures. Since 1983, Eppco has been operating under the 'fixed price policy'. You have to view Eppco differently from the other two national oil companies. They have other resources and businesses that will help them offset problems at the retail end. We are a professional entity and we are not subsidised in any way, unlike other two companies in this field, so we are perhaps suffering more.

The issue of fixed pricing in the fuel retailing sector has always been a problem. Have you made any representation to the government on this long-pending issue? All retail fuel companies are suffering. The government has decreed that the fuel retailers follow a fixed price policy. We are a commercial organisation and, in effect, it is we who are subsidising the market on the fuel. In other GCC countries, virtually all the fuel service stations are selling fuel at fixed price but they in turn get a fixed margin on sales. Here, we sell fuel at a fixed price irrespective of the price of the crude.

At what crude price can you break-even? At a rough estimate, when the crude is at $20 a barrel, this translates into approximately $230 for a metric tonne of gasoline. Today, crude is around $35 a barrel (on the day of the interview). However, this is a very sensitive subject. Fuel is the only commodity that is price controlled in this country as of now.

Is there any indication from the government that this issue can be sorted out? From January 1, 2003, only unleaded fuel was available in the UAE. Now we have two fuel grades — 95 and 98 — sold at Dh4 and Dh5 respectively. We hoped the new pricing structure would give us some relief. But surprisingly, 91 per cent of the petrol sales are currently the cheaper fuel (95), and the '98 unleaded' is used by a very thin customer group — those who own expensive cars.

How do you propose to address this precarious situation? We propose to shore up the bottom-line by moving into other businesses, especially non-fuel businesses. We have opened up Tasjeel, the vehicle testing and registration centres in co-operation with Dubai Police. We continuously look to other areas to diversify the business away from total reliance on retail fuel sales.

Are there any diversification plans? Of course yes, but only in the oil and gas business. We are basically an energy company and whatever projects we visualise, they will be confined to the oil and gas sector.

You have previously hinted at restructuring plans for the group and trimming the size of the company. Can you shed a little more light on this? Restructuring is a continuous process at Enoc. Oil is a commodity and the market is very volatile. A lot of things affect the price of oil, such as the geopolitical situation in the region and the problems in Venezuela, for example. All have affected the price of oil in the past few months. Speculation also affects the price. Energy companies have to remain lean to ride through lean times.

How far has this been possible for you? We have cut down costs in all our group companies. We do have a nationalisation programme, but this does not mean we will go on employing people unnecessarily. We are growing with more and more retail outlets, with an Enoc brand identity.

What about Eppco? Our expansion plan is for Enoc brand service stations. Eppco is a 60:40 joint venture between Enoc and Caltex. We have big investment plans for Enoc this year.

Any plans to buy out or sell off the stake in Eppco? This has to be decided by Caltex. This has been a successful joint venture since the 1980s and I don't see any reason why it should break up. We are happy with the joint venture.

What is the paid-up capital of Enoc? The paid up capital of Enoc is Dh500 million.

How do you propose to finance future investment plans? Any plans for bonds? These are the issues that have to be worked out by our finance and treasury departments after weighing our fund positions. As for bank loans, as in the past, we will look at both Islamic as well as mainstream financial routes in the future.

How do your retail fuel sales grow, and what is your present market share? We grow at an annual rate of 8 to 9 per cent. Our market share in Dubai and the Northern Emirates currently stands at 50 per cent.

Is there any deal that prevents you from opening service stations in Abu Dhabi? There is no agreement or contract that says that we should not open service stations in Abu Dhabi.

Can you explain the current status of Dragon Oil? This is a very good asset that Enoc acquired which is 69.4 per cent share four years ago. Major investments are planned for Dragon during the current year that might help raise the output from the present 15,000 bpd upwards. In terms of performance, the year 2002 had been a much better year.

What happened to the $50 million loan from Enoc to Dragon? That is due in the next two to three months. The board will decide whether it can be re-negotiated, because Dragon is a public listed company.

Which areas will Enoc focus on in future? We have major assets within the group. One is the 120,000 tonnes a day condensate refinery in Jebel Ali.

We also have the subsidiary Dugas, which has two gas processing plants. Dugas is responsible for processing natural gas produced in Dubai's offshore oil fields as well as gas piped from Sharjah.

We have substantial storage facilities for petroleum products. Most historically profitable group companies have gone through hard times during the last year. But things are changing. We are optimistic that this year will be good for us.

We are looking at new businesses overseas. Oil storage will be a strategic business for the group in future. We are planning to substantially increase our oil trading business. Fresh investments in other local and international energy companies are also planned. We are looking at selected downstream projects, refuelling operations overseas, including India. We are marketing lubricants in 23 countries and this is constantly expanding.

www.taipeitimes.com BLOOMBERG Saturday, Mar 15, 2003,Page 12

ECONOMICS: Market forces appear to have trumped politics as shipments of Iraqi crude to the US more than tripled from September to January to 17.1 million barrels

As the George W. Bush administration masses troops in the Persian Gulf in preparation for a war to topple Iraqi President Saddam Hussein, US refineries are the biggest customers for the crude oil Iraq produces.

Shipments to the US more than tripled from September to January, according to the Commerce Department. Iraq supplied 17.1 million barrels in January, 6.4 percent of total US oil imports and up from 5.15 million four months earlier.

The jump in imports came as an illegal surcharge that benefited the Iraqi government was dropped and as refiners sought alternatives for crude from Venezuela, where a strike crippled oil production.

"The US is by far the biggest customer of Iraqi oil," said Eric Kreil, an analyst at the Energy Department's Energy Information Administration. "Iraqi oil is a pretty good substitute for the Venezuelan grades that were cut off."

Iraq pumps about 3 percent of the world's oil and is the third-largest producer in the Middle East. The prospect of a war in Iraq has helped boost the US benchmark oil price by 39 percent since November.

Iraq is allowed to export oil under an exception to UN-imposed sanctions imposed after the country's 1990 invasion of Kuwait. The UN must approve Iraq's oil sales, and proceeds are designated to pay for food, medicine and oil-industry equipment.

The surcharge, which helped the government skirt UN control of oil revenue, stopped toward the end of last year, said George Beranek, an analyst with Petroleum Finance Co in Washington. That made Iraqi crude competitive with oil from other sources.

US imports of Iraqi oil rose by 64 percent in November from October, after falling to a four-year low in September. They continued to climb in December and January, according to Commerce Department figures released yesterday.

The global oil market doesn't discriminate against a country's oil as long as it's priced competitively, said Youseff Ibrahim, editor in chief at Energy Intelligence Group Inc in New York.

"It's not a deliberate decision by the US or anyone" that made the US the largest user of Iraqi oil, he said.

The US doesn't import oil from Iran and Libya, two other states that the government has identified as supporters of terrorism.

In 1986, the Ronald Reagan administration banned US companies from doing business in Libya; UN sanctions against the country were imposed in 1992.

The US has imported little Iranian oil since 1979, according to Lowell Feld, an international oil-markets analyst at the Energy Department.

"US sanctions have waxed and waned since then," he said.

"The last time the US imported Iranian oil was in 1991," when the government allowed limited shipments, he said.

Bush said in April that he would only support lifting US sanctions against Libya and Iran if they acknowledged past acts of state-sponsored terrorism.

About two-thirds of the oil Iraq exported in February went to the Americas, and half of that went to the US, according to an analysis by Energy Intelligence Group. That suggests the pace of imports the Commerce Department reported for January continued last month.

US refiners have been buying Iraqi oil as an alternative to supplies from Venezuela, which were cut off when workers went on strike in early December. Venezuela met 10 percent of US oil needs before the strike began. Iraq's Basrah and Kirkuk grades are reasonable substitutes for the crude produced in Venezuela, which is a high-sulfur or "sour" grade.

"Iraq got an additional boost from Venezuela," Beranek said. "US refiners took any bit of crude they could get, particularly sour crudes."

"There was a certain stigma associated with taking Iraqi crude because it was assumed that you paid a surcharge" that benefited Hussein, Beranek said.

www.arabnews.com Agence France Presse

MOSCOW, 15 March 2003 — Saudi Arabia and Russia are coordinating their efforts to stabilize oil prices despite the Iraq crisis and maintain prices at levels desired by OPEC and Moscow, Minister of Petroleum and Mineral Resources Ali Al-Naimi said yesterday.

Riyadh and Moscow are both seeking “to ensure the stability of the world oil market and fair prices,” Al-Naimi said after talks with his Russian counterpart Igor Yusufov, as quoted by the Interfax news agency.

“We favor a fair level for oil prices, defined by OPEC (the Organization of Petroleum Exporting Countries) at 22 to 28 dollars a barrel, and that in no way contradicts the price level set by the Russian Federation of $20 to $25 per barrel for benchmark Ural,” Al-Naimi said.

Fears regarding the uncertainty surrounding a possible war in Iraq have seen oil prices rise sharply, with the current price standing at $33 a barrel.

“Halt the war situation and the prices will fall,” Al-Naimi said.

The minister hinted that Saudi Arabia might not be able to make up the market shortfall in supplies of crude if Iraqi production should be halted because of a war.

“Until now Saudi Arabia has been able to compensate for oil shortages on world markets, but I can only speak about hard facts,” he said.

“When there was a strike in Venezuela and oil supplies on the world market dropped, we were able to make up the difference. I can’t say what would happen in the hypothetical case” of a war in Iraq,” he stressed.

On Thursday, the first day of his visit, Al-Naimi noted that Saudi Arabia in February used 90 percent of its current 10.5 million barrels a day capacity.

Like Saudi Arabia, Russia is a major oil producer, but it is not a member of OPEC.

www.atimes.com By James A Russell

With the Bush administration intent on regime change in Baghdad, much attention in the press and in the policy community is understandably focused on the rights and wrongs of tactics of removing Iraqi President Saddam Hussein. But while the circumstances of Saddam's removal are being crafted and debated, the broader issue facing strategic planners is the task of reconstructing a regional security architecture that may be more relevant to the region's emerging requirements in a post-Saddam era. Just as the attacks of September 11, 2001, forced a break from the past and enabled new ways of thinking about how the United States should interact with the international community, the debate over the removal of Saddam provides the US with an opportunity to reexamine a host of assumptions that have driven US security strategy and policy in the region over the past decade. When the Berlin Wall came tumbling down in 1989 and the inauguration of the "post-Cold War" world was proclaimed, the forces of change that swept through various other parts of the globe did not materially affect the Persian Gulf. The presence of a defiant Saddam and the so-called "box" of containment constructed largely with American military power were major reasons why forces unleashed by the absence of the US-Soviet rivalry did not manifest themselves in the Gulf. But the prospect of a Gulf without Saddam could represent a "crumbling" of a Berlin Wall of sorts in the region and unleash a variety of pent-up forces for change that could profoundly affect regional security and stability. The dictates of prudent planning suggest that the US, the region and the international community start thinking about these issues now if we hope to see how a war with Iraq could be made into a positive force for long-term security. If the Gulf has been slow to see the forces of change flowing in the post-Cold War era, it is also true that US strategy in the Gulf has changed little during the past 20-odd years. American interests, strategy and policy have remained remarkably constant over the decades. Starting with formulations by senior policymakers dating to the 1940s, the US has always regarded unimpeded access to the oil of the region as a "vital" interest. While using force to protect this interest was by extension always an implicit assumption, it wasn't until president Jimmy Carter's January 1980 statements in the aftermath of the Soviet invasion of Afghanistan that the commitment finally became public. Flowing from this commitment, the US subsequently deployed forces to the Gulf in the 1980s to protect oil tanker traffic and then fought the Gulf War after Saddam threatened to overrun the Arabian Peninsula in 1991. US strategy and policy in the region since then have operated on three assumptions:

1. The need for access to reasonably priced oil.
2. The need to ensure that no hostile force control the region and its oil supplies or so intimidate other states so as to coerce supplier states into taking actions inimical to consuming nations.
3. A commitment to use force if necessary to protect and further these interests. The US security architecture in the region is largely based on these key premises. The idea of a "security architecture" suggests a complex interrelationship between a host of political and military variables and a decision-making process that can coherently and systematically integrate them into a whole. In terms of defining the critical elements of the architecture, the US has over the decades:
4. Defined the US vital interests in the Gulf.
5. Developed a strategy to protect and further those interests.
6. Formulated policy to implement that strategy.
7. Committed the political and financial resources to operationalize this policy in the region. During the 1990s, the US did reasonably well following this logical process in establishing a security architecture that served its interests. In strictly military terms, that architecture had a number of main elements: forward deployed US forces engaged in ongoing operations, access to host nation facilities, prepositioned equipment, sales of defense equipment to promote the self-defense capabilities of American allies, and regional military engagement through exercises and training. (1) The issue facing the policy community today is whether this existing security structure will be relevant to the post-Saddam period and whether it will continue to protect and promote US interests and those of its allies. More...

www.dailytimes.com.pk

“The impact of increased oil revenues of the Gulf states will be partly offset by the weak dollar, because oil is traded in US dollars in the international markets and most of the Gulf currencies are pegged to it.” Daily Times Monitor LONDON: Uncertainties over the Iraq crisis and political strife in Venezuela may have given the oil market a shot in the arm, with Brent blend prices touching $36 per barrel in early March 2003 compared to $20 per barrel in February 2002. The news of increased revenues for oil-producing states, especially in the Gulf Cooperation Council (GCC) countries, should be music to the ears of Treasury officials, reports Arab News. But beware such gifts lest they are considered in the context of the huge economic structural challenges in the Gulf, and the damage they may wreak on the global economy. Fears of an imminent war against Iraq have already sent the dollar to new lows against the euro and sterling, and forecasts about any rebound post-Saddam Hussein are mere speculation. The price of gold has also risen, and bonds too are up, but equities continue to take a beating. The impact of increased oil revenues of the Gulf states will be partly offset by the weak dollar, because oil is traded in US dollars in the international markets and most of the Gulf currencies are pegged to it. However, according to the International Monetary Fund (IMF), a sustained $5 per barrel increase in the price of crude oil would decrease global GDP growth by as much as 0.3 percent. Lost GDP growth year-on-year February 2002 is estimated at $1.1 billion per day. The impact of such a development would be even worse on the US and European economies. The basic scenario is that if the Iraq crisis is resolved this side of 2003, then the US economy, supported by an accommodating Bush administration, would rebound in the second half of 2003 with real GDP growth forecast at 2.6 percent. The upswing in the UK is projected at an encouraging 2.4 percent, but the Euro zone will experience a more sluggish recovery at 1.3 percent and Japan stagnate at a negative real GDP of 0.2 percent. The emerging markets too will improve, although there remain concerns over whether Turkey, Brazil, Argentina, and Venezuela will be in a position to service their foreign debt. Most analysts agree that any contagion is likely to be regional and modest. For the Arab world, however, the exceptional oil revenues will mean that growth will be liquidity-driven (both in 2002 and 2003), a scenario which economists such as Brad Bourland, the chief economist of Saudi American Bank (SAMBA), warn could mask the inherent structural weaknesses of Arab economies. Last November’s IMF Consultation IV report on Saudi Arabia, for instance, commended the Kingdom for its reform program, but stressed that the pace of reform is too slow and urged greater fiscal discipline and transparency. This lack is not confined to the Kingdom but pervades almost all the Arab economies. In 2001, Saudi Arabia had the largest GDP in the Arab World at $188 billion, followed by Egypt at $98 billion; the UAE at $55 billion; and Kuwait at $35 billion. This compared to the major economies such as the US at $10,200 billion; Japan at $4,200 billion; Germany at $1,900 billion; the UK at $1,400 billion; Mexico at $574.5 billion; and Switzerland at $240.3 billion. SAMBA projects Saudi GDP growth in 2003 to be just under 4 percent (compared with an estimate of 0.7 percent in 2002). Only Algeria, Bahrain, Qatar, the UAE and Tunisia are projected to reach real GDP growth above 4 percent in 2003. But according to Bourland, key weaknesses remain in the Arab economies — they are still growing more slowly than their populations and labor forces; and governments rarely exercise strong fiscal discipline. Saudi Arabia’s real GDP growth in 2002 of 0.7 percent pales against the annual growth of 4.9 percent in its local labor force. In neighboring Qatar the gap is even bigger: 1.5 percent GDP growth against a 6.6 percent rise in the labor force. This means that the real GDP growth relative to sustainable growth potential is negative in all Arab economies. Unemployment hangs over the Arab economies, with some of the politically most volatile and dysfunctional countries having the highest estimates. Algeria has an unemployment rate of 26.4 percent; Tunisia at 15.6 percent; Oman at 17.2 percent; Libya at 11.2 percent; Jordan at 14.4 percent; Morocco at 14.5 percent; and Egypt at 8.7 percent, with a propensity toward disguised unemployment everywhere. Despite rising oil prices, most Arab countries are still plagued by budget deficits in 2002, although the short-term effect if oil prices are sustained at current levels may reduce deficits in 2003. However, this will depend on whether governments can curb public expenditure. And if the Arab economies lack strong fiscal discipline and transparency, as the IMF stresses, the persistency of the deficits are likely to continue unless structural reforms are institutionalized. On the question of reform, while analysts welcomed the opening up of more sectors to foreign investment, especially Internet services, printing, data exchange, insurance, advertising and PR, they rue the fact that other activities including fixed-line and mobile phone services and oil exploration are still barred. A number of the reforms and new laws are drawn-out and are not retrospective, and some of them will only take effect in two years time.