A SLIC CONC
The head of Bangchak Petroleum believes in collaboration and diversification, rejecting a top-down approach.
If the company suffers, you and your families, who are part of the company, will also suffer. CHAIWAT KOVAVISARACH PRESIDENT AND CHIEF EXECUTIVE BANGCHAK PETROLEUM PLC
In some organisations, executives are expected to conjure up solutions to challenges based on the force of their personality alone.
But Chaiwat Kovavisarach, president and chief executive of SET-listed and mostly state-owned Bangchak Petroleum Plc, still believes that clear and direct communication between executives and staff creates organisational efficiency.
“When the company needs to escape a crisis, or when we face major tasks, we need collaboration from all of our staff,” Mr Chaiwat says. “For some jobs, we may need to brainstorm a solution from several staff, as this offers a better solution than what one person can muster.”
For example, last year the company was ordered to rev up its refined oil output to a record high of 130,000 barrels per day (BPD), though it had been scheduled to shut down the refinery for 45 days. So the chief executive gathered every employee together, from the headquarters to the refinery, to brainstorm a solution.
“The staff cooperated to come up with an elaborate solution that considered all working processes, even small equipment and gadgets in order to prevent any plant accidents, as even a small accident would mean a delay in production, stalling the business plan,” he says.
Mr Chaiwat, 49, took over as president on Jan 1, 2015, surprising staff by introducing himself on YouTube and talking about new initiatives and policies to be carried out during his time at the helm.
Chatting with the Bangkok Post, he mentions some
tough lessons Bangchak learned in the past, such as during 2001-03 when the company was debt-ridden and faced recordlow margins compared with peers because of its ageing refinery system and technology.
The situation forced the company to face two major challenges: restructuring 20 billion baht in debt and earning more revenue for additional capital expenditure of up to US$400 million to upgrade refining technology.
This meant cutting burdensome debt and increasing gross refining margin to earn a higher profit margin.
By that time, the Finance Ministry had invited the world’s leading financial advisers to submit debt-restructuring plans for Bangchak. Mr Chaiwat owned a company — Turn Around Co — that was hired by the ministry to run Bangchak’s debt-restructuring project.
“In those days, Bangchak was thought of as just another peanut in the eyes of the world’s leading financial advisories,” he says. A small company such as Bangchak was not thought of as needing a world-class debt-restructuring company to solve its problem, which is why Turn Around was chosen.
‘‘The other debt-restructuring firms also did not understand the essence of the problem Bangchak was facing, as well as the specific characteristics of the companies Bangchak was dealing with,” Mr Chaiwat says.
After the restructuring was approved by shareholders and the government, Mr Chaiwat had to communicate the plan to all Bangchak executives and get them on board with cutting debt.
The debt-restructuring plan was completed in 2003, but the company still needed a way to generate higher profit. In 2006, Bangchak invested $387 million in its petroleum quality improvement project (PQI) to help generate higher profit, enabling the company to have sufficient capital to diversify into other energy businesses.
The PQI helped increase margins for refined oil products to meet the higher global environmental standards of Euro 4 in 2012. The PQI also increased efficiency and refined oil output.
To generate the investment for the PQI project, the company needed to communicate to its shareholders why a debenture was necessary to upgrade efficiency and margins, which it did via conferences and a website.
“If the company suffers, you and your families, who are part of the company, will also suffer,” Mr Chaiwat remembers telling investors. “We needed to increase the margin, and every 3,000 barrels of added refined oil helps the company gain another 1 million baht in margin.”
Previously, about 30% of output was cheap bunker oil, but the PQI switched 80% of output to high-value petrol such as diesel and jet fuel, decreasing bunker oil production to 9% of the total.
Bangchak’s refined oil production capacity is 96,000 BPD, while gross refining margin is $13 per barrel, up from $7 last year and $3-$4 before the PQI project.
The proportion of higher-value petrol and middle distillates increased to 82% of total refined products, up from 64%, while oil refinery utilisation was 70% in 2009, up from 48% in 2006.
Earnings before interest, tax, depreciation and amortisation (Ebitda) rose to 7.1 billion baht in 2009, up from 4.3 billion in 2008.
The uptick in fortunes led Thanachart Securities analysts to call Bangchak the ugly sister that became Cinderella in 2007.
But Mr Chaiwat was not satisfied, calling for better oil stock management to avoid losses. After huge supply gains during 2006-08, when Bangchak’s oil stocks bulged before oil prices jumped to a high of $142 per barrel in October 2008, Bangchak recorded huge losses in 2009 when oil prices collapsed and again during the volatile period of 2014-16.
“Over the past decade, prices have varied from $142 to $28 per barrel last year,” Mr Chaiwat says. “That has taught us how to lower risks incurred from stocks.” Bangchak also learned to diversify its business. During 2005-10, Bangchak expanded into biofuels and renewable power, spearheading the local green energy boom with solar farms and biofuel plants.
Mr Chaiwat joined Bangchak’s board in 2007 and worked closely with staff until the end of 2014, when he was selected as the new president.
“Although we have a lower refining capacity than our competitors, our competitive advantage is our diversification into promising clean-power businesses,” he says.
In 2015, Bangchak spun off its power business into wholly owned BCPG Plc, which listed on the Stock Exchange of Thailand early last year. BCPG increased its renewable power-generating capacity from 20-25 megawatts in 2010 to 418MW by the end of last year. Capacity is expected to reach 1,000MW by 2020, due to projects across Asia-Pacific.
During its listing process last year, BCPG acquired Australian-listed Nido Petroleum, which operates in the Philippines. The acquisition was worth A$120 million, or about 3.6 billion baht.
Bangchak’s Ebitda exceeded 10 billion baht in 2015, putting the firm in the top 50 of SET-listed firms.
“We want to reach the top 20,” Mr Chaiwat says.
His YouTube video mentioned his ambition to be the first head of Bangchak to bring the company to the international market. “If we did not decide to invest in green business and the overseas market, Bangchak would again struggle with debt and we would be like Kodak, which went out of business,” he says. The company plans to expand its renewable power business in Indonesia, Japan and other Asean countries. It also wants to continue to expand its oil retail business by increasing its petrol stations at home and in the Mekong region. Bangchak’s brand image is strong among Thais, easing its diversification into other businesses, Mr Chaiwat says. Last year it acquired a 7% stake in a Canadian lithium miner, Lithium Americas Corporation (LAC), worth US$5 million.
LAC is set to expand mining operations to Argentina by March, aiming for 25,000 tonnes of lithium in the first year and reaching full capacity of 50,000 tonnes in 2018.
“The power storage business is a global trend we should not miss out on, because it is transforming the way people can utilise energy,” Mr Chaiwat says.
If we did not decide to invest in green business and the overseas market, we would be like Kodak, which went out of business. CHAIWAT KOVAVISARACH PRESIDENT AND CHIEF EXECUTIVE BANGCHAK PETROLEUM PLC