Price increases curb demand for kerosene, diesel but boost JPRC's sales value by 43% - Jordan  

(MENAFN - Jordan Times) AMMAN — Fuel price increases last year raised the sales value of the Jordan Petroleum Refinery Company (JPRC) but cut the firm's sales volume as a result of lower demand.

In financial terms, sales surged by JD483 million or 43 per cent to JD1.61 billion from JD1.12 million in 2005.

In terms of volume, overall sales of petroleum products dropped by 7 per cent, or 356,807 tonnes, from 5,083,371 tonnes in 2005 to 4,726,564 tonnes in 2006.

Sales volume of all oil derivatives declined except gasoline which increased by 6.28 per cent and liquefied petroleum gas (LPG) which went up by 4.55 per cent, the 51st annual report showed.

Kerosene topped the list with a 16.92 per cent drop in sales followed by an 11.48 per cent decline in sales of diesel.

Asphalt, fuel oil and jet fuel also showed lower sales by 11.46 per cent, 8.32 per cent and 4.59 per cent respectively.

"The higher cost reduced demand for kerosene and diesel, whose prices rose by 43 per cent," JPRC Chairman Michel Marto told shareholders in a foreword to the annual report.

He said: "The price rise shifted the consumers' demand to LPG due to the cheaper cost of this product compared to the kerosene and diesel prices."

Marto attributed the continued drop in demand for fuel oil last year to Egyptian natural gas reaching the northern part of the Kingdom and the shift of power generation plants to natural gas.

"The new consumption rates required a reprogramming of refining operations and exporting the surplus of fuel oil," the chairman indicated.

Other production-related highlights included in the annual report was a 29 per cent, or 311,572 tonnes, drop in oil derivatives imported in 2006 as it totalled 756,097 tonnes compared to 1,067,669 million tonnes in 2005.

In addition, the crude oil refined during 2006 totalled 4,300,511 tonnes, 200,350 tonnes or 4.45 per cent lower than the 4,500,861 tonnes refined in 2005.

Regarding the JPRC's fourth expansion, the company said that the capacity of present units in the refinery are no longer sufficient to meet the needs of the local market.

Consequently, "All feasibility studies conducted for the fourth expansion have unanimously confirmed the need to start implementing the project to face the expected rise in consumption and to produce all products in conformity with latest international specifications besides being for the post-concession period".

The expansion would also include installing special units to transform the heavy fuel oil to higher-value products such as diesel, kerosene, gasoline and LPG, because of lower demand on fuel oil as a result of using natural gas in power generation.

In advocating the importance of the expansion, the JPRC explained that it would be highly costly to import ready oil derivatives from international markets by sea to Aqaba noting that the process entails handling, storing and transporting the petroleum products by land to consumption centres throughout the Kingdom.

The company also noted the limited capacity at Aqaba Port to receive large oil tankers.

In analysing the operations and the financial position, the annual report detailed the increase in the cost of sales and revealed a JD214 million deficit that was shouldered by the government.

"The cost of sales that include the price of crude oil, the raw materials used in production, the purchases of the ready derivatives and other costs as mentioned in the 'cost of sales account' amounted to JD1,548 million against actual cost of JD1,762 million," the report explained.

As such, the JD214 million difference is the deficit which represents the subsidy that was taken up by the Treasury during 2006.

Despite a 4.27 per cent decline in the output, the company said that the cost of crude oil and actual raw materials used in the production rose by JD172 million from JD1,281 million in 2005 to JD1,453 million in 2006 as a result of the increase in prices of crude oil and imported raw materials.

The cost of imported oil derivatives dropped by JD74 million from JD372 million to JD298 million last year due mainly to less imports of diesel on lower demand.

The JPRC balance sheet as of December 31, 2006 showed a sharp increase in credit facilities from banks which surged by JD19.7 million from JD79.2 million to JD19.7 million at the end of last year.

"The credit facilities were raised to face the increased burden of financing the purchases of crude oil at international prices," the company said.

It also attributed a JD70.8 million surge in the balance of creditors to JD221.8 million mainly to a rise in the account of the Saudi oil firm ARAMCO.

Liabilities went up by JD11 million for financing the strategic reserves.

Consequently, the inventories of crude oil, petroleum derivatives and other supplies totaled JD349.43 million compared to JD230.21 million at the end of 2005.

Receivables were down from JD126.22 million to JD99.68 million at end of 2006.

Out of JD508.85 million in total assets, fixed assets amounted to JD36.07 million. Total assets, amounted to JD409.63 million in 2005.

Although JPRC posted JD63.48 million in gross profit last year compared to JD55.86 million in 2005, the net profit boiled down to JD4.60 million, down from JD6.74 million.

The reason for the drop came from higher selling, distribution, general and administrative expenses as well as bank interests and commissions.

Despite the lower net profit, the company will distribute dividends to shareholders at the rate of 12 per cent of the JD32 million capital.