Buraqoil: Urbanisation our biggest challenge

> Brand owner IPTB Sdn Bhd is one of three operators of ‘mom and pop’ petrol stations in the country

KUALA LUMPUR: Mini petrol station chain Buraqoil, mandated to operate in the rural areas of eight states, says urbanisation is a bigger hurdle to it than the fluctuation in oil prices.

“The biggest challenge is that as the rural areas become suburban they become very attractive for the major oil companies to come in,” Buraqoil COO Zahid Ali Ahmed ( pix) told SunBiz.

Buraqoil is among three mini petrol station chains operating in the rural areas of Malaysia, following a Cabinet decision in 2008, whereby three companies were mandated to supply petrol and diesel to unbranded mini stations (UMS) to designated regions, in a bid to standardise operations of UMS. The Domestic Trade, Cooperatives and Consumerism Ministry declined to respond to queries on the policy governing mini petrol stations.

The three companies are Buraqoil brand owner IPTB Sdn Bhd, Petro Teguh (M) Sdn Bhd and Smart Stream Resources Sdn Bhd. Buraqoil is listed among the High Performing Bumiputera Companies (Teras).

IPTB operates mainly in Sabah, Perlis, Perak, Kelantan Terengganu, Pahang, Kedah and Penang, and has more than 170 stations in total. Former culture, arts and tourism minister Tan Sri Sabbaruddin Chik is a director of the company along with Zahid. Its shareholders include Yayasan Mesra Rakyat with a 30% stake, Infratrans Asia Sdn Bhd with another 30% and individuals Anam Awang and Khairi Samat with 20% each.

Zahid said services are an important factor for these “mom and pop” stations which predominantly are community based and display a strong element of personal relationships, among others.

“If you are operating in rural areas, the community is not as big as in cities. The demand for fuel is not as big as it is in urban areas,” Zahid said.

“Going forward if we want to be on a stronger footing financially we have to open more stations. Aesthetics, cleanliness, basic amenities are what we are looking at for the new stations,” he said, adding that the company broke even last year. As at Dec 31, 2015, it recorded a net loss of RM947,430 on RM250.44 million revenue.

Buraqoil is looking to add 10 stations to its existing chain by the end of this year.

With a business model of sourcing petrol and diesel from depots of oil companies like Petroliam Nasional Bhd (Petronas) and Petron, one way Buraqoil is affected by the fluctuating oil prices is through the commissions it earns from oil companies, which remain at fixed rates regardless of oil price movements.

Buraqoil sources its supplies from Petron depots in Kota Kinabalu, Bagan Luar and Kuantan. As for Langkawi, where six of its stations are located, the supply is sourced from the Petronas depot on the island.

“There are some locations where the transport cost is actually higher than the commission. If we do that, for example in Sarawak, then we will be operating at a loss as some of the stations are located way into the rural areas. It will take you a good number of hours to transport (petrol) from the depot to the station so, because of that, it is not feasible for us,” he said.

Buraqoil has been sourcing its logistics services from third party companies. Its biggest revenue contributor is Kedah.

Profits earned are channelled into transport, operations and maintenance of its proprietary system. The east coast region is seen as having strongest growth potential, given its land mass.

Lower capital expenditure (capex) and working capital, according to Zahid, sets a mini station apart from standard petrol stations.

A mini petrol station will require a capex of RM500,000 to RM600,000 and additional working capital of RM150,000.

The Domestic Trade, Cooperatives and Consumerism Ministry, the Petroleum Development Act 1974 licensing guidelines stipulate that to set up a petrol station, dealers have to have a minimum capital of RM150,000 whereas wholesalers of petroleum products will be required to have a paidup capital of not more than RM100,000.

Wholesalers such as Buraqoil are subjected to the PDA4 licence, which is subject for renewal every two years.