The Seychelles Petroleum Company (SEYPEC) reported a first positive net cash flow surplus on its tanker operations since the past six years although it had been showing a positive operating net cash flow. This successful turnaround concludes a combination of forceful efficiency-driven policy coupled with circumstantial elements in the tanker business worldwide.
On a relative basis, tanker operations look attractive and prospects are more conducive for a continued path to a profitable era. ‘We have finally steadied the ship and turned around by posting a net cash flow of USD M 6.3 (SR 82 million) for this year,’ SEYPEC’s CEO Conrad Benoiton told NATION. ‘Revenue has climbed from 39.2 USD M in 2009 to 54.8 USD M in 2015, a leap of 39%. Profits prior loan repayments on overall activities of the tankers have soared from USD 1.3 M in 2013 to USD 15.0 USDM in 2015. The end result is this unprecedented net cash surplus of USD 6.3 M in 2015 which part of which will be handed as returns to the Government of Seychelles, our main shareholder, for the benefit of the Seychellois people.’
The company now enjoys a greater financial flexibility in these relatively good times with expected average annual net surplus for the next 4 years hitting SR 122 Million (Fig 1 ). These solid results and warming prospects contribute to a very positive operating and financial performance of the company as a whole. ‘This has been possible through a combination of positive underlying tanker market conditions and the company’s proven business model,’ Conrad Benoiton states. ‘We continue to improve the efficiency of our operations, and firmly believe that our significant shipping activities are a source of strength and stability going forward. Whilst the geopolitical and economic outlook remains especially difficult to predict, we remain optimistic about the prospects for further tanker market growth. It is a fact that we have long suffered an unjust bashing, but SEYPEC has resiliently thrived with its tanker operations through all adversities. Now comes the time to handover these returns to the nation and to continue marching forward with high standards of operational ethics.’
The winning formula
Since 2013, SEYPEC has secured a valued partner for its tanker business. This strategic partnership signed with the highly efficient German company GTS (German Tanker Shipping GmbH & Co) has brought the operations and results to new heights. By linking with the German company, SEYPEC has pressed the button of a winning formula which is the pivotal element to the turnaround apart from the favourable global oil transportation situation prevailing worldwide. ‘GTS has a strong foothold in the market, including a significant global presence and low cost operations due to its ability to spread overheads,’ Conrad Benoiton explains. ‘They excel in supervision, manning, chartering, operations, insurances, supply of stocks and spare parts, maintenance as well as the constant surveillance and improvement of all quality, safety and security standards. SEYPEC’s decision to link with GTS is therefore a win-win partnership. GTS has now an extended fleet of 18 vessels with the inclusion of the 5 vessels from SEYPEC and we benefit from all aspects of the economies of scale. We have attained another level playing field since 2014. Owners worldwide continue in their attempt to balance the books by lowering costs and the popularity to hand over the crewing and operating management is on the rise.’
This strategic partnership offers better technical supervision, reliable risk management, and expert procurement and financial experience to SEYPEC. The results have been in line with the initial expectations with the utilization rate rising from 60 to 93 % for the last 2 years due to a good market performance. This has obviously generated increased, stable and encouraging revenues whilst guaranteeing a better upkeep of the company’s assets. Conrad Benoiton: ‘Our partnership with GTS is very positive. We now play in the back garden of the very stringent European shipping territory. Through our partners, we are in a position to dictate terms for doing business, for restructuring and rationalization of port calls, for tighter controls over agents, and for cut down on various cargo handling expenses. These efforts have significantly contributed to the overall results. But another massive advantage of this joint venture is the immense cutting for the Seychellois seafarers for their training and employment in the most attractive area of the world.’
Unique training and development platform for Seychellois
Indeed, the commercial deal engaged by SEYPEC with GTS has offered a unique opportunity to Seychellois seafarers as they are now given the possibility to integrate a global oil shipping sector. Together with the Seychelles Maritime Academy (SMA), SEYPEC has devised a comprehensive and long-term strategy to enhance and consolidate the training and deployment of local seafarers. The platform is now much wider with the 18 vessels of GTS where the seafarers can operate giving them inestimable international exposure. It also puts them into focus with the high-level continental European certification after acquiring standard operation procedures. ‘This is part of or Corporate Social Responsibility programme and all the training costs are supported by SEYPEC,’ Conrad Benoiton explains. ‘We have to-date 108 Seychellois trained or being trained and employed as seafarers in the SEYPEC crew pool. Crewing is a vital element to operating tankers but also an expensive one. SEYPEC therefore fulfils an obligation to train Seychellois nationals overseas which would have been otherwise difficult for the SMA. We have roughly invested SR 58 million in the last 10 years training and developing skills of our local crew. We shall not stop on such positive track as we have already decided to recruit many more young aspiring seafarers for pre-sea courses in Sri Lanka and subsequent placements on board of our fleet during 2016. Apart from the investment in career development, we are also proud to note that the local crew members are helping the country to earn foreign exchange with an important amount of their salaries which is repatriated every year to the tune of SR 72 million.’
Diversification with an objective
At a time when the investment in the tanker business is yielding dividends to the nation and the company, the actual concept of such venture is proving SEYPEC right. This major strategic diversification allows a host of advantages to permeate into its main activity of importing and distribution of petroleum products in Seychelles. The decision to broaden the financial capabilities with a strong asset base is the biggest ever foreign investment by any local company. Today, Seychelles has an asset value of over SR 1.3 billion in the tankers, representing the residual value of the vessels. This also gives a massive asset value on the balance sheet of SEYPEC triggering countless advantages when dealing with its suppliers. ‘We must admit that we have massive leverage when we negotiate for oil imports and our suppliers reckon that the company has the financial answers. This lowers interest rates and eliminates many costly financial guarantees as confidence in our company rates high. We are also very happy that are self-invested and did not require any rupee from public funds nor any guarantee from the government. It must be stressed that this profitable investment had been fully endorsed by the government and this far-sighted outlook some years ago is now showing results.’
This ‘go abroad’ policy was characterized by a vision whereby Seychelles must aggressively seek overseas opportunities. The tanker fleet capable of hauling a substantial portion of oil distribution nationwide and operating in international waters epitomizes this declared policy.
An economist stated to NATION, ‘This is a quest for reliable energy supplies and the best way to minimize our vulnerability is to increase our preparedness for less than normal times. This concept involves commercial interests pursuing profits under the banner of enhancing national energy security. The coherent plan for the creation of a national tanker fleet shows that the government of Seychelles did not economize on this strategic national interest. Today, the oil tanker build-up is still driven primarily by commercial factors with a major national interest underlying factor. No other small country in the region has such a fleet to guarantee its petroleum exploration interest along with direct energy security supplies given any eventuality.’
Upholding the Seychelles flag worldwide
Today 5 tankers: Seychelles Pride, Seychelles Pioneer, Seychelles Progress, Seychelles Prelude and Seychelles Patriot proudly and efficiently display the national flag of the country on the oceans of the world. TheSeychelles Paradise serves the domestic needs of fuel and LPG gas on Praslin and La Digue and provides a yet another profitable offshore bunkering service in the region.
‘The structural domiciliation of SEYPEC’s 5 tankers in the Isle of Man have given way to numerous unjust speculations but is now proving its effective logic and advantages,’ a financial specialist affirms. ‘The fact that these tankers are officially registered in this recognize financial hub adds considerable goodwill: it helps a lot to secure loans in foreign currencies at a lower interest rate than would ever be possible in Seychelles, it is an easy gateway to secure these loans without back-breaking conditions and it gives the utmost credentials and trust-building to SEYPEC when dealing with partners for the import of petroleum products for the country.’
In the past years, SEYPEC has registered a savings of no less than SR 540 million on interest rates for the loans contracted.
Times are changing
This year witnessed one of the steepest fall in crude oil prices with higher supply on account of huge pumping of shale oil & gas in US and OPEC not tapering its production volumes. ‘In the past, the world has been reliant on OPEC’s (Organization of Petroleum Exporting Countries) oil,’ Conrad Benoiton explains. ‘But times are changing due to oil prices and technology use, and non-OPEC producers are expected to contribute to a significant portion of incremental oil supply going forward. This can affect the logistics of the global oil trade and demand for oil shipments. With orders from China and India looking to capitalise on the low prices to fill their reserves output is expected to remain steady and there is little evidence the current oversupply of oil flooding the markets will diminish.’
The SEYPEC CEO concludes by expressing his confidence in the future: ‘our company has treaded a meaningful path for over 30 years, serving the nation with utmost dedication and commitment. We have weathered out the difficult periods and emerged as winners. SEYPEC seeks continued support and patronage of all stakeholders to further build up this great Institution. This all ‘Seychellois Team’ deserves the utmost recognition, they have earned it!’