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Wed 27 Apr 2011 06:03 PM

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UAE’s Emarat faces pay penalty after fuel shortage

Payment problems caused last week's fuel shortage, high oil price squeezing company

UAE’s Emarat faces pay penalty after fuel shortage
Petrol pumps at Emarat stations across Dubai ran dry last week after delivery problems at the companys depots
UAE’s Emarat faces pay penalty after fuel shortage

United Arab Emirates' fuel retailer Emarat may have to pay a premium for fuel purchases, traders said, after a payment problem led to a gasoline shortage at service stations last week and worried potential suppliers.

Local media reported last week that around 60 of Emarat's 170 service stations across Dubai and the northern emirates were running low or dry after delivery problems at the firm's depots due to what Emarat officials described as a logistical problem.

But three industry sources said trading house Vitol, one of Emarat's term suppliers, had refused to discharge a fuel cargo at the port, after Emarat delayed a payment.

An Emarat spokesman declined to comment on Wednesday.

Emarat last week said the problem had been resolved but industry sources say the incident might prompt traders to seek higher premiums in the next tender.

"I would think twice and ask for more competitive terms if I were to be doing business with them," a Gulf-based trader said.

This is the second fuel shortage since September 2010, when the company said technical problems had hit supplies.

"You would want to make it easier for your suppliers. That way you would get better prices," one gasoline trader said.

Last week's shortage lasted for three to four days, prompting a rush to competitor stations owned by Emirates National Oil Co (Enoc) and its subsidiary Emirates Petroleum Products Co (Eppco).

Oil major BP and Vitol were awarded a January tender to supply around 80,000 tonnes a month for the April-December period. Both companies declined to comment on the issue.

Emarat has been operating at a loss for many years as gasoline prices in the UAE, the world's third largest crude oil exporter, are heavily subsidised and that has taken a toll on the company's profits.

"It raises questions like why the government has not intervened in the situation," a third trader said.

The UAE began in 2010 to phase out price caps on the gasoline but a further move is unlikely, analysts and traders said, given widespread social unrest in the Arab world.

"The difference this time is likely to be that the company's financial hardship situation has accelerated on account of both the large rise in crude prices so far this year and the cancellation of a planned domestic gasoline price hike, leaving the company with a much larger spread between its income and costs than initially anticipated," said Sam Ciszuk, senior energy analyst at IHS.

In January, the UAE's Federal National Council passed a bill that will allow Emarat to borrow the equivalent of up to 50 percent of its capital.

At the time, the company's total debt amounted to around AED1.9bn ($517.3m). It has a capital of AED6bn

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Punky Brewster 8 years ago

High paying salaries will DEFINITELY affect the bottom line! Manage that, and it might be more profitable in the long run, eventually! Simple rule of business...