Interview: Nabil Smida, Chairman and CEO, Société Nationale de Distribution des Pétroles AGIL
What investments are necessary to further develop Tunisia’s local storage capacity?
NABIL SMIDA: In 2017 we completed our liquefied petroleum gas (LPG) storage centre in the governorate of Gabès, in the south of Tunisia. With six spheres and a 12, 000-tonne total capacity, the centre doubled its storage capacity from 10 to 20 days, and will ensure Tunisia’s autonomy. Before the completion of the centre, Tunisia had an LPG storage deficit, and was unable to keep pace during the winter months, when demand for gas increases considerably. This unit also supports the Southern Tunisian Gas Project, or Nawara Project, and will be able to recover the LPG that would have otherwise been lost. However, storage capacity still needs to be increased in the Bizerte region to 4000 tonnes and in Gabès to 6000 tonnes.
Oil bunkering is another area where significant investment is necessary, as Tunisia currently has no market share. The French, Italians and Maltese now lead the market in this domain, and oil ship bunkering is conducted by trucks. Therefore, we are working on the first phase of a project to build storage capacity and thus gain a market share of 5-10% by the end of 2020.
How can Tunisia fight the illegal trade of fuel?
SMIDA: The illegal trafficking of fuel from Libya and Algeria into Tunisia has been an issue for several years, and has evolved to reach an important share of the market. This not only hinders downstream oil companies’ business, but also results in a significant fiscal loss for the state. Therefore, the government needs to establish a comprehensive strategy to fight the illegal market, starting with stronger control of Tunisia’s borders with both neighbouring countries.
Security needs to be enforced by digitalisation to prevent illegal fuel from pouring in. Furthermore, the Tunisian population needs to be sensitised to the dangers of using contraband fuel that is not held to safety and quality standards. Fortunately, our market share started to increase as of April 2017, which means there has been a decrease in the illegal fuel market.
What are the challenges associated with commercialising petroleum products?
SMIDA: The Tunisian market is gradually demanding cleaner and more efficient products that offer a better price-quality relation. Although we are developing a premium fuel of higher quality, commercialisation of such a product is limited by the regulation of the market, where the state predetermines the prices.
In fact, both the quality and the prices of petroleum products are administered. Therefore, the margin of profit to be made in the sector is minimal: no more than 4-5%. The market needs to move towards higher quality standards and more flexible prices to meet the demand. The prices at the pumps should depend on supply and demand as well as individual petroleum distribution companies’ costs, which would stimulate competition. Beyond downstream oil companies, the Tunisian state would also benefit from liberalising the sector, as they currently suffer economically from having to subsidise petroleum products. Liberalisation would significantly reduce the government’s subsidy bill and in turn the fiscal deficit. Removing fuel subsidies will provide fiscal slack and help support public investment in other areas.
How can more lubricants be exported?
SMIDA: Tunisian refined oil products have the potential to be exported to the rest of the African market, where the demand for lubricants is growing at a fast pace. Our products’ high quality and competitiveness could meet the rising demand for all kinds and grades of lubricants in African countries, and that’s the reason we are looking to export our brand to those markets as well. This country has substantial blending capacity for locally refined products, which should serve to boost exports and consequentially reduce the trade deficit.