That, perhaps, sums up what Al-Ma’ashouq brings to the table: a keen sense of the playing field in an industry that can turn on a dime.
In the following years, a number of positions of responsibility – primarily in the field of corporate planning – for Saudi Aramco’s various business ventures around the world were entrusted to Al-Ma’ashouq. Then, from 1996 to 1999, he arrived in the Philippines to become vice president of corporate planning, and later VP and general manager of the marketing division of Petron Corporation. He was concurrently director throughout his first posting in the country.
Two years before in February, Saudi Aramco had bid US$502 million to acquire 40 percent of Petron Corporation. The local oil giant was also publicly listed for the first time in its history and its initial public offering proved such a hit that government had to place limits on stock ownership.
In September 2000, Al-Ma’ashouq succeeded Khalid Al-Falih as president and CEO of Petron Corporation in Manila. Unfortunately, it was a less than auspicious debut for the new president. In light of a worldwide increase in crude oil prices and a local depreciation of the peso, Petron registered a billion pesos in losses that year.
Nonetheless, Al-Ma’ashouq’s managerial skills helped to steer Petron into calmer waters. One measure was to simplify the almost 70-year-old organization. "We’ve moved away from a very hierarchical company to one that is more open and transparent. The flow of ideas is not obstructed; process is more important than form. That resulted in a painful though necessary step of reducing manpower by 25 percent in ’96. The next step was to implement a dynamic IT system. Once information is available to more, it will enhance decision-making."
Now, Petron remains the number one oil company in the Philippines, cornering 38.2 percent of the market.
Al-Ma’ashouq hopes to continue the dominance by making a shift from a conservative paradigm to a more entrepreneurial approach. He says of Petron’s future: "It’s a journey we have taken. Aligning compensation with performance provides more of an entrepreneurial approach to the business. Employees now have to take risks. The most remarkable journey of Petron entailed painful decisions. But now we are an organization that has no difficulty expressing itself or advancing ideas that benefit the company."
The 40-year-old president and CEO, who reads a lot and delights in conversation, is neither daunted nor disheartened by the slew of crises that has faced the Philippine landscape, preferring to see them as challenges.
"I’ve always said that Petron and the Philippines have provided me with a major exciting opportunity not only to personally grow but to be able to dream about future business possibilities with my colleagues. We knew back in ’96 that many initiatives were attainable. This is one of the few markets that you can actually think about major shifts in business philosophy," he declares.
Excerpts from the Philipine STAR interview:
How do you find the Philippines?
Unique in the Philippines is the warmth of people and their curiosity. They’d ask "Where are you from? What are you doing here? Do you enjoy the weather?" In other countries you don’t normally get that. I think it’s very pleasant. In other countries, you feel a sense of isolation, here you don’t feel that. The curiosity leads to interesting conversations, the conversations lead to friendships. Very quickly, you are able to assimilate and feel you can be part of the society. You’re not seen as an expatriate. In many other countries, there is a gap between expatriates and locals.
Did you have an idea of how Filipinos would be like?
I did. We have a very large Filipino community in Saudi Arabia, so I know very well how Filipinos are like. I used to play tennis and basketball with Filipino teams. It’s difficult not to come across Filipinos in Saudi Arabia.
What were the unique challenges you faced when you assumed the presidency?
When I joined Petron in 2000, it was a tough time for the oil industry. So my energies were taken up by short-term, urgent activities.
Such as?
Oil pricing. When you go back to September 2000 and into the fourth quarter, crude prices in the world market were increasing at very high rates, while the peso was deteriorating versus the US dollar. That really placed a lot of pressure on the oil companies to adjust prices upwards. But nevertheless, we were also cognizant of two very important drivers for our business in the Philippines. These differentiate us from the rest of the companies outside in the world. One, is that we have a stake in the success of deregulation. We wanted deregulation to succeed and establish a solid foundation in the country. Second, we also were cognizant of a socio-political and economic responsibility to moderate these increases to support the deregulation process — to show that deregulation is not about one-way price direction. So these were enormous pressures. Typically, a president of a company should not be totally preoccupied with the short term. You leave the rest of the company to manage the business on a day-to-day basis. My role is encouraging the company to think ahead, to look at opportunities and to formulate plans to help us reach our vision.
I hit the ground running, and I really didn’t have time to catch my breath. Luckily, given my familiarity of Petron and the oil industry in the Philippines, that didn’t prove to be a constraint as I was quickly able to tackle issues of a short-term nature. We were also able to witness a very historic chain of events that led to the Arroyo presidency. In the middle of that, as a company we had to maintain our perspective of serving our public, of not deviating from our core philosophy, of wanting to be the most admired company in the Philippines. So despite the difficulties of the oil industry, the political changes in the country, the economic difficulties, management had to very quickly rally our employees to focus on our core values. What made us strong in the past would continue to push us in the future. We looked at it as a tremendous opportunity to identify strategies to serve us well in the future. We started reducing our costs – initially a very painful process – move out of our comfort zone to tackle painful issues. In time, it became part and parcel of the company’s modus operandi.
What does management in Saudi Arabia think of the Philippine situation? It invested a lot of money to acquire shares in Petron. Are they worried?
I think that any large investor such as Saudi Aramco doesn’t look at issues affecting the company over a one or two-year period. An investment of such magnitude is normally an investment over a long period of time – 20 years plus. Therefore, once you start looking at it from a long-term perspetive, you will go back to basics. What are those fundamentals that will dictate the attractiveness of the Philippines as a market to invest in over the long term? This is an oil market that is set to grow, despite the difficulties that we’ve seen lately. It has, on a per-capita basis, significant potential versus other Asian countries, given the size of the population and infrastructure. There is a role for Petron to play in the country over the next 20 years. And if Saudi Aramco through Petron could be part of that, then this will drive their attitude toward their investment in Petron. I think that Saudi Aramco’s entry into the Philippines was not an entry based on short-term gains, but really based on a long-term partnership with the Philippine National Oil Company to really move Petron forward as it continues to sustain its leadership in the oil market. These comments have always been echoed by the president and CEO of Saudi Aramco whenever he visits the Philippines. Saudi Aramco is in for the long term.
But could you empathize with foreign investors who have pulled out of the country?
I heard one view lately that this is still subject to dispute — whether investors are pulling out or not. We still don’t know that. I think what you see is the flight of, for lack of a better word, fluid capital. What investors of this type will do when they see that the equities market is not attractive is to take their investment elsewhere. But if we talk about large industrial investors – those who invest in projects of long-term nature – there has been no exodus. Having said that, I think the challenge for the government is to continue to provide an attractive environment for more capital-intensive investments to come in. This can only happen by providing the right regulatory framework, right incentives, and definitely by improving infrastructure to bring it at par with other markets competing for the same investments.
Petron incurred a net loss of about a billion last year. This year, the company posted a net income of P513 million in the first six months and can expect more or less the same amount for rest of the year. You describe it as "very modest margins." What’s the outlook for next year? Are you keeping your fingers crossed?
The oil industry is quite unique, especially in the Philippines, because we are influenced by two factors outside our control. One is the direction of global oil prices. We do not have a keen sense of where oil prices are headed. We still see that the market is tight, and this is providing support to oil prices globally. The other factor that we don’t control which affects our business significantly is the peso exchange rate. So if I want to give you an outlook for next year, I have to start with where I think oil prices will be, and where I think the peso rate will be. I think I would need a very clean crystal ball to be able to tell me that (laughs). But anyway, I will give you my two cents’ worth. I think that oil prices next year are bound to remain at current levels. I don’t think we can expect to see a decline. This should provide a stable influence in our business next year. The peso is a different story. The level is dictated by economic developments in the country and by the ability of the government to bring the necessary economic policies into a major alignment. This in turn is dictated by the global economy. There are many different factors at play here. But another dimension to your question is the level of oil demand, which affects our sales. There is a very strong relationship between economic growth and oil-demand growth. So if you see economic growth remaining constrained next year, then oil demand will likely remain constrained. I will also, unfortunately, provide another bearish dimension to this. The structure of the market is changing with the entry of natural gas from Malampaya. This will back out a significant portion of oil sales to the power sector. These are all pressures on our business. But I’m confident because these are issues that we have thought about and addressed and formulated strategies to deal with. We have been aggressively exporting in the region. This has given us a fairly good cushion against the potential drop in local oil sales. That has been a success story for Petron. The regional strategy is one we would like to reinforce and nurture. Second, it’s the cost discipline. The fact is that we have been lean in terms of our cost management. We’re disciplined in terms of looking at our businesses in the company. We look at them with a sharper eye and a heightened sense of urgency. That’s my job, to keep that urgency alive in the company. To borrow the words of a CEO of a major company in the US, paranoia is healthy. You need to keep everybody feeling that there’s a crisis every day and we can’t relax.
In the Philippines, that’s real. It’s not just paranoia.
(Laughs) In our company, when you look at the bearish dimensions to our business, there’s only one way to address those — by being very aggressive in how you tackle your profit opportunities and cost management as well.
You mentioned resorting to export. Petron exported nine million barrels of oil last year, up from 4.5 million in ’99. Is that figure going up this year to minimize expected losses?
We’ve done that so far. The key business assumption there is if there are profitable opportunities in the regional market, Petron will be there. The regional market is all about competitive pricing — pricing that is dictated by the Singapore market. If we feel that this price is giving us the right returns, Petron will be there. So yes, we are very active in looking at securing long-term relationships in the region that will allow us to have a sustainable presence in this market.
What’s Petron’s biggest market for export?
We export primarily to China. I think that China is a growing market and we’re currently evaluating many initiatives in the company – not only exporting oil but specialty products like lubricants.
You projected a flat income growth for the company for next year. Isn’t that a very troubling statement?
What I said was, at the press conference after the stockholders’ meeting, we expect oil demand to be flat. We have a drop in fuel oil demand, which offsets the modest growth in gasoline, diesel and LPG. But I did not comment on the income. Our objective has not changed — to be a profitable company to benefit our stakeholders and shareholders.
Is Petron a conservative company or a risk-taking one?
I think that we’re in the middle. I would use the concepts conservative and entrepreneurial. Our role is obviously to manage risk. The spectrum is from conservative to entrepreneurial. This has been a journey that started with the privatization of Petron. The fact that we are a publicly-listed company, the fact that we now are looked at by a very savvy investment community and we are looking at the company’s business practices, initiatives, entrepreneurial activities. We are being judged now by a larger group of people than before. This is a major change that we’ve seen in the company; the ability to respond to a much broader constituency.
You said that Petron will spend a substantial portion of the P837 million capital expenditure program on marketing and supply investments –specifically on the establishment and re-imaging of more service stations and the installation of additional equipment for some industrial accounts. Please elaborate.
Again, this is a key part of the journey that we took in Petron. If you want to look at the conservative Petron in terms of design and image, you would see it in our old logo. But when you see the new logo – it’s an expression of dynamic change. That was the thinking that led to our re-imaging our service stations. We spent a lot of money converting old service stations and building new ones in the new image. A major part of this initiative was improving our service to our customers. We also provided the people skills to give value to this new image. We have been recognized for that effort when Readers’ Digest awarded Petron the Superbrand Award. That was a significant confirmation that we are doing the right thing.
What does it take to stay number one?
As far as we’re concerned, if you define it quantitatively, ours is not a complete focus on market leadership. We want to maximize value for our shareholders. If that comes locally, well and good. If that comes regionally, also well and good. We are trying to balance our activities in a manner that would provide value to our shareholders. A broader definition of market leadership is an ability to be accepted by the consuming public as a company that provides quality service and cares about its consumers. In that aspect, we will always protect our leadership. We will continue to innovate, bring new products and serve our customers better. We will continue to have exciting programs and promotions, we will continue to improve customer service at the service station level. Market leadership as far as connecting with the customer will always be a major strategy, objective and value.
Do you believe in the so-called staggered price adjustment scheme to cushion the impact of an oil-price hike?
Whether it’s staggered or one-time, adjustments need to happen based on changes in crude price and peso exchange rate. If you do it on a staggered basis, and the adjustment is in one direction. Would that lessen the reception of the resistance of the consuming public? It remains to be seen. I think we are headed to an environment where you are going to see frequent changes, whether up or down. In my mind, the more important basis for the oil pricing question is that do we accept that changes in the world oil price and the exchange rate will result in changes in local prices. I think if this is accepted, whether it’s up or down, we would have achieved a great deal of progress. It should be dictated by market structure. The more players that would come in, the more active the price adjustments would be.
Do you see the new players as a threat? Are you thinking about pulling down prices to their range?
Absolutely not. To me, the most important objective for the industry is to see the success of oil deregulation. I believe it’s also a very valid objective for any government as well. The natural consequence of this is a desire to see a lot of new players coming in. It’s in the interest of everybody to see as many players in the market as possible. The beneficiary is the customer.
Once and for all, is there an oil cartel in the Philippines? Is there a collusion among the Big Three?
To answer that, you have to step back and ask whether the market environment gives rise to a cartel. The market enviorment is deregulated, meaning there’s absolutely no constraint on any company worldwide to import products to the Philippines and/or to invest in the oil market locally. If there are no restrictions on the entry of new players to the market, then we cannot look at the Big Three as being a cartel. The fact that we more or less have similar cost structures give rise to prices that are similar and we tend to follow the pricing of our competition so that we don’t jeopardize our market share strategy. The parity of duty between product imports and crude oil imports is key to leveling the playing field for companies that refine oil and companies that would like to import products in the region.
Whenever we ask about the cartelization, we have to be specific about market segments. In the LPG segment, 25 percent is dominated by new entrants. That happened over a fairly short period of time. When you look at the industrial market (oil supplies to big industrial customers and the power industry), this market has low entry barriers which means you don’t have to invest heavily to set up business and compete with the Big Three. We’ve seen very intense competition and the price has significantly declined. Now, where do we see the dominance of the Big Three? We see it in the retail market and the service station network. But this is a high barrier market segment because you need to invest significant amounts of money to have a large network to be able to have a reasonable market share. This is not to say that we in Petron did not invest to be where we are at the moment. We actually invested significant amounts to support our leadership in the market. The big layer that surrounds all of this investment decisions in the retail market is the perception of the investor of the stability of deregulation. If the investor perceives that deregulation is not proceeding in a stable way, and that oil industry is being criticized actively, then the potential investor is going to be resistant to investing.