KARACHI: Shell Pakistan Ltd announced on Wednesday it’s going to discontinue its aviation operations across Pakistan.

In a regulatory filing to the Pakistan Stock Exchange, the oil marketing firm said it was “no longer commercially viable” for it to run the aviation business.

The company currently conducts its aviation-related operations at four locations: Karachi’s Jinnah Airport, Quetta International Airport, Sukkur’s Begum Nusrat Bhutto Airport and Nawabshah Airport.

Following the expiry of the leases related to these airports, the Pakistan Civil Aviation Authority (CAA) floated a joint tender for the operation of six airports, including Skardu International Airport and Gwadar International Airport.

Oil marketing firm says it’s ‘no longer commercially viable’ for it to run aviation business

“After due consideration of a wide range of factors, including legal compliance, financial and commercial considerations, Shell Pakistan has taken the decision not to participate in the tender,” it said, noting that the final date of exit from these airports will be communicated after consulting with the CAA.

However, “Shell Pakistan remains committed to continuing all its other businesses and operations in Pakistan, which remain unaffected,” the company said in its latest statement.

As per the last annual report of Shell Pakistan, it was the “second largest jet fuel supplier” in the country and catered to over 25 domestic and international customers.

Speaking to Dawn, Topline Securities Associate Director of Research Umair Naseer said fuel suppliers in Pakistan operate on low profit margins while striving for bigger volumes.

The dominant player in the country’s jet fuel market is Pakistan State Oil Company Ltd (PSO), with a share of 94.5 per cent in 2020-21, according to the state-owned oil marketing company.

The share of PSO is disproportionately high in the jet fuel segment given that its overall share in the oil marketing industry stands at 51.4pc.

Sales of jet fuel underwent a major decline following the pandemic-related curbs that limited international travel following March 2020. As a result, the jet fuel industry shrank 32.4pc in 2020-21 from the preceding year, with the business of PSO declining 32.2pc with the closing volume of 331.5 thousand tonnes, according to the oil marketing company.

In a blow to its already minuscule competitors, PSO also acquired new business in 2020-21 from international airlines and customers, including Virgin Atlantic, Pegasus Airlines, Istanbul Jet, British Airways, Air China, Air Sial and Air Falcon. It also exported jet fuel to cater to Nato/Isaf requirements.

“Oil marketing companies in Pakistan drive profitability on the back of inventory gains. Jet fuel is a very thin-margin segment,” said Mr Naseer.

Meanwhile, Shell Pakistan told stock market participants on Wednesday its net profit for the April-June quarter clocked in at Rs5.4 billion, up 26.8 times from the comparable period a year ago.

Its half-yearly profit amounted to Rs7.5bn after increasing 3.5 times from a year back.

A separate statement by the company released to the press said the turnaround was driven by improved business performance focusing on strategic priorities such as differentiated fuels and lubricants and a favourable change in the pricing formula to the pricing agency S&P Global Platts’ indexes by the government.

Published in Dawn, August 18th, 2022

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