Hascol Petroleum must have been the last thing on his mind when the acclaimed author Nassim Nicholas Taleb came up with this aphorism: The facts are true; the news is fake.
A lot of facts – and fake news – have been doing the rounds about Hascol Petroleum of late. Sifting the former from the latter is necessary to determine who is at fault. So let us start with the basics.
Hascol is one of the leading oil marketing firms operating in Pakistan with a market share of 4 per cent in the first 11 months of 2020-21. Like most businesses that are cyclical in nature, it is no stranger to ups and downs. Its growth trajectory in the first 10 years of the last decade was spectacular by all measures.
Revenues increased by more than 50 per cent a year on average between 2010 and 2018. Beating all its competitors except one, Hascol became a juggernaut with annual sales of over Rs232 billion. It set up about 100 petrol pumps annually for many years while focusing on serving customers on highways and in the suburbs around those highways.
Then the crisis hit. It intensified in 2019 and resulted in a net loss of Rs25.8 billion. Why? Hascol was exposed to some market conditions that many of its competitors were not.
For example, the sudden and unprecedented devaluation of the rupee against the dollar hit the company in the worst possible manner. Unlike other big oil marketing companies that have stakes in local refineries and buy a substantial chunk of their product locally, Hascol was dependent on imports up to as high as 95 per cent of its stocks.
The unprecedented volatility in oil price also played a key role. The government controls pricing in the oil business. This means oil marketing companies like Hascol, which maintains 20-day stocks at any given time, must sell at a rate lower than its cost if the government revises down the official price in line with the international trend. Hascol booked huge losses in 2019 as it found itself stuck with high-priced inventory to be sold at far lower rates.
Then the pandemic hit the economy and particularly affected the oil marketing companies. Lockdowns were imposed and the movement of people through cars, buses, trains and planes ground to a halt.
Hascol suffered, but so did all other cyclical businesses. True, the suffering in case of Hascol was more perceptible than in companies in other cyclical industries like cement and automobiles. After all, Hascol had witnessed a debt-fueled growth of over 50 per cent every year in sales for almost a decade. A high debt level revs up growth in good times, but kills cash flows in the worst possible way when the going gets tough.
No wonder shareholders stepped in to support the company in January 2020. They reconstituted its board of directors, replaced senior management and started negotiations with banks for debt restructuring.
The company has repeatedly said it fully intends to return the borrowed money over time. The second largest oil marketing company until recently has no reason to default on its loans when its nationwide network of petrol pumps is still servicing vehicles 24/7. In addition, the company is actively seeking foreign direct investment as part of its restructuring efforts.
But most importantly, it is being transparent. Look at its June 21 announcement on the Pakistan Stock Exchange. It announced it might restate its financial statements in view of fresh evidence received from a whistle-blower about a series of false purchase orders recorded in the company’s 2019 books.
Who does that in Pakistan? The announcement was pleasantly surprising given that the company stated in the same notification that any revisions in financial accounts would likely have no material impact on its recent and future operations.
Once again, who does that in Pakistan?
It may sound counterintuitive at first, but the fact remains that the allegedly false purchase orders must have been recorded at higher-than-actual rates. Hence, a story in Dawn the next day quoted an Arif Habib Ltd analyst as saying that any restatement of financial accounts would only make the numbers more favourable.
Yet, speculations about the company continue unabated. From pseudo-analysts posing as paragons of virtue to the peddlers of fake news in the mainstream media, so many people have been trying to run down a company that’s contributed so much to the economy as a good corporate citizen for many years.
The recent hate-filled commentary on the affairs of Hascol sounds like constructing a straw man argument. Critics have zeroed-in on a handful of Hascol’s performance indicators and then distorted and exaggerated them in an extreme way — only to attack the extreme distortion as if that was the real claim that Hascol was making. But that does not change the truth. The facts are true; the news is fake.
— Zahid Hussain is a