Smain Larbi Ghomri – CEO, Hyproc – Algeria
The CEO of Algeria’s energy transportation company, Hyproc, explains the future investment strategy of the company and its contribution to maintaining Algeria as a key LNG & LPG player on the international scene.
What have been your major successes since becoming CEO of Hyproc in 2012?
Since I became the CEO of Hyproc, we have successfully achieved our new offices in Arzew, and that our staff now have a more modern and comfortable working space, with the latest IT and communications technologies that allow them to share data more quickly and efficiently. It also helped us gain more trust from our staff.
In December 2014 we signed contract for two new building LNG tanker, following a two-year process from tender to conclusion, and the signing of a USD 400 million contract with the option for an optional vessel, which would take the contract’s value up to USD 650 million contract. This will be a new start for the company: the revenue from our LNG and LPG vessels activities represents close to 70 percent of our current turnover. Hyproc owns five LNG vessels, as well as four in partnerships with other firms, but the ones we fully own were built in the 1980s – this new vessel contract will therefore lead to historic changes for the company. We ordered very modern and wide ships from Hyundai that will be delivered late 2016, early 2017. These vessels will open our business to new and very competitive markets.
What defines Hyproc today?
First of all, we are part of an integrated LNG and LPG value chain: to produce and commercialize LNG and LPG there is a long process of multiple actions, and Hyproc is a crucial link in that chain regarding the Algerian gas. We allow that integrated chain direct access to markets. Many of our customers must meet national needs along with local energy needs: Hyproc tries to be as efficient as possible in order to answer all our customers’ demands according the deadline that they set, without any intermediary. We try to be competitive by cutting the transportation margin as much as possible, to allow the Algerian LNG and LPG to reach the market at competitive rates. We are able to do this by not having intermediaries between our company and the customers and optimizing our costs
How do you structure your company according to your client’s needs?
We have vessels organized in a ‘one ship one unit’ structure, meaning that each ship is dedicated to one contract or trade. Before the 2000s we had never tried partnerships, mainly because at that time we were rejuvenating our fleet and increasing our capacity. After this date we have decided to do this in order to diversify and expand our experience and take benefit of the attractive finances packages abroad at that period, then we have established partnerships and work with other companies with experience in that area, because entering an international market on our own and facing all the issues linked to project financing was too risky. We had to share the risk with other companies that were experienced in this field. Achieving our goals necessarily had to include partnerships, and we had to choose partners we could work with, therefore we had several consultations and meetings to find the right partners, also factoring in the return on investment of a project considering the demands of each partner. Our final decision was to choose BW Gas for one ship and Itochu and MOL as our Japanese partners for three ships.
Algeria is the second largest LPG exporter and the 6th largest LNG exporter worldwide. How does Hyproc contribute to Algeria’s success? And how do you intend to remain as one of the key players on the international market?
As a shipping company, our goal is to be a part of Algeria’s success, and for gas exports to be successful we need to have a logistics chain in place that adds value to the product. Sonatrach has always trusted Hyproc to do this, and we have always met their expectations and achieved the goals set by the market challenges.
Transportation is a critical factor in a long-term strategy. Every country builds its society around energy: whether you have it in the ground or not, you need to build an energy policy. It can be based on an exchange – you give me the energy, I give you the technology – or it can only be based on trade, and if this is the case then you need to be competitive and technologically well in advance. Algeria’s geographical location, at the heart of a global market, allows us to trade with the USA but also Europe. Qatar might take a larger share of the Asian market, but we have the best location to do business with Europe, US and also Asian Countries. We still need to be competitive when it comes to production costs and transportation, but also we need to master deadlines and make sure to keep customers happy with our service. Therefore, logistics is a very important aspect of our job, because it’s the last link between the company, its product and the customer. You can have low costs but if you have poor service you won’t be competitive or successful. At Hyproc, we have all the resources, skills, training and tools to live up to all the challenges of LNG and LPG markets. Our goal is to expand the company further and acquire more ships.
How many LPG ships do you own?
We own six ships: two of them are 35,000m3, two of them are 22,000m3 and the last two are 7,000m3, which are used for our national cabotage. We also own two small ships used for refined products: Hyproc doesn’t only work in the gas business. We transport refined products from Arzew to other cities in Algeria such as Alger or Annaba for example. It’s a specific market because it is part of the national need and only works with chartered vessels. We want to acquire ships so we can transport some products on our own.
You used to be located in the industrial area in Arzew and now you are based in the offices area. Can you please explain us how you contributed to its development and why you decided to change location when your head offices are located in Oran?
We had to make a small separation between the headquarters and our operational sites. In Arzew we were located in a hired building we didn’t own since Hyproc’s creation in 1982. Its maintenance was expensive for a very little quality. So we started to look for a new location to base our headquarters, this was an ongoing project since 1982 but never happened until 2002.
But there were only a few locations where we could build our offices on in Arzew so we decided to look outside of the city and we found this new space for our offices: we were the first ones to settle in this area. It’s well located so we decided to separate our administrative and management departments (human resources, legal department, accounting etc.) from our operational units.
Unfortunately we had to keep our operational staff in our old building but we acquired a small lot and built a new operational headquarters offices, which opened in December 2014, and put the 200 people who are in charge of the fleet in it.
So now we own all of our buildings in Oran, Arzew and Mostaganem, but the last one is a bit specific because it’s a training center for our employees, for now but our goal is to expand our training programs to the Algerian maritime sector and then maybe all of the Maghreb and Mediterranean area. We can teach in English, in French and Arabic.
In 2013 Hyproc had a turnover of USD 193 million, and LNG represented 44 percent of this. Can you talk about your 2014 results?
In 2014, our turnover decreased slightly because of a sizeable investment program: three of our ships had to go through regular maintenance and therefore couldn’t operate during this period. Overall, we had a seven percent decrease compared to 2013. The breakdown was very similar this year between LNG and other activities, but we had a three percent increase in our LPG business and a 24 percent decrease in our LNG business, for our other activities (refined products) we had a 17 percent rise, we recorded a 6 percent growth for our ship management and finally a 17 percent increase of our additional activities.
What investments are planned for Hyproc in the coming years? Sonatrach has an investment plan for 2015-2019 – will you be a part of it?
Sonatrach’s planned investment is aimed at increasing production and transportation, and there is an important target to extend gas production capacity in Arzew, which will give more potential to our ships but also more funding to buy new vessels. Our aim is to replace the five old LNG ships we own: we already bought two and have an option on another. I hope we will issue another tender to acquire five or six new LNG vessels, which will benefit the Sonatrach group.
We will invest more in the LPG branch of our company by increasing the funding for exports and acquiring four more ships in addition to the ones we already own. Our situation, skills and finances will allow us to continue this investment curve. The national cabotage is not stable enough because it obeys to seasonal trends and no one can tell how it will evolve over the next 20 years. It’s an activity we follow day by day and that we develop depending on reasonable margins.