British Petroleum Co. plc plans to double the size of its retail product sales operation in the former East Germany by the end of 1995.
Because East Germany is the key to BP's European retail strategy, this marks a push into development of retail networks in new markets in Central and eastern Europe.
BP opened its 50th service station in eastern Germany Dec. 1 and intends to operate 100 stations after completion of a 500 million deutschemark ($290 million) development program begun in 1990. The company's schedule called for 55 East German service stations in operation by the end of 1993.
BP's investment to date in East German service station construction and sites amounts to 300 million deutschemarks ($170 million).
BP oil products sales in Germany during 1992 amounted to 13.7 million metric tons, or about 10% of the country's market.
"When we started building retail outlets in eastern Germany we were confronted with a completely new market," said Friedrich Wilhelm Berchelmann, manager of BP's East German retail project.
"The retail network in the former German Democratic Republic was based on supply criteria, not on the customer's needs. Consequently, locations and facilities available at the outlets were very basic. The filling station network was totally obsolete, and stations were few and far between."
Since German unification, Berchelmann said, the retail scene is buzzing after a hike in the number of vehicles, and there is keen competition among oil companies.
From 1990 to mid 1993 the number of private cars in East Germany rose to 6.8 million from 4 million. During the same period, industry's number of retail outlets increased to an estimated 1,800 from 1,200 and is expected to reach 2,000.
"It is no exaggeration to say that the most modern retail network in Europe is being developed in the eastern part of Germany," Berchelmann said.
GDR MARKET
The German Democratic Republic's planned economy was geared to save foreign currency by keeping oil demand as low as possible, said Peter Bettermann, chairman of BP Oil Deutschland.
"Refineries were built and operated not on the basis of economic factors but on military requirement with a view to maximizing the link with the chemicals sector," Bettermann said.
"A small car population and an inadequate filling station network were intentional in order to be able to export surplus fuel produced by the refineries."
Middle distillates were used to produce diesel fuel and kerosine. Fuel oil was not supplied for the heating market. Instead, indigenous lignite contributed two thirds of primary energy supply and was the main source of energy.
The unification process in Germany and collapse of the former Eastern Bloc initially provided strong impulses for the German oil market. Total oil sales in the unified Germany rose in 1990 92 by 13 million metric tons to 134 million metric tons.
Monetary union on July 1, 1990, in which one East German mark was equal to one West German mark, set off a wave of consumption. Many East Germans sold their Trabant cars and bought new or used western models.
"In the West this had the effect of a vigorous economic upswing with positive impulses that also benefited oil consumption," Bettermann said.
"In eastern Germany, two opposing forces emerged. While the collapse of German heavy industry caused a decline in energy consumption, the growing volume of traffic brought about a robust increase in automotive fuel sales.
"Light fuel oil was also able to establish a position in the heating market, though the rapid advance of natural gas in the East seriously hampered the expansion of heating as oil."
PRIVATIZATION
Before the unification of Germany, the oil business was handled by two state concerns: Intrac was responsible for supplies and exports and Minol for storage, transportation, and distribution of products.
The GDR had two large refineries at Schwedt and Leuna and two smaller plants at Zeitz and Bohlen. Total capacity was 400,000 b/d.
The Treuhand, which oversees German unification, was assigned to privatize state refining.
"This was carried out with varying degrees of success," Bettermann said. "In the case of the Schwedt refinery the result was favorable. This project was a genuine privatization, with transfer of risk to private companies taking place July 1, 1991."
Leuna refinery privatization was longer and more difficult. A number of groups, including one led by BP, competed for the plant. But the Treuhand and government let the refinery go to a combine led by Ste. Nationale Elf Aquitaine.
In July 1992 Elf took over operatorship of the Leuna and Zeitz oil refining and chemicals plants, with business risk being borne by the Treuhand.
"Elf is planning a new refinery at Leuna, which in the eyes of the industry is oversized, and would thus jeopardize jobs elsewhere in East and West German refineries," Bettermann said.
EUROPEAN STRATEGY
BP's downstream focus in Europe is on transport fuel, said Rolf Stromberg, chief executive officer of BP Oil Europe.
BP Oil activities throughout Europe include:
- A marketing volume of 40 million metric tons in 1992, or 40% of the BP group's downstream business.
- Sales of $30 billion before tax and $17 billion after tax during 1992.
- Operation of five European fuel refineries with combined capacity of 35 million metric tons/year, along with three base oil refineries.
- Operation of 6,000 gasoline stations serving more than 1 million customers/day.
"In the retail business we aim at concentrating our resources and operations in selected markets where we have or can achieve a strong position," Stromberg said.
"In the commercial transport business, we are giving priority to areas where we expect rapid growth, in particular through crossborder traffic. An important aspect of this business is the increasing use of card management services by car or truck fleets."
Other operations include sales of heating gas oil, liquefied petroleum gas, lubricants, and bitumen.
"Starting from a fixed assets base of about $3.5 billion in 1990, in the past 3 years we have invested about $3 billion," Stromberg said.
"A substantial part of this has gone into East Germany, but very significant areas of investment have also been Portugal and in particular Spain, where BP Oil Europe has firmly established itself in the downstream market after deregulation."
BP's plan was to increase productivity by reducing fragmentation. Much work previously done in 15 European countries is now being done in Brussels, Hamburg, Paris, and Hemel Hempstead in the U.K.
Restructuring is said to have increased BP Oil Europe's productivity by about 30% since 1990. Stromberg said restructuring is half through and will be largely completed by 1995.
CENTRAL/EASTERN EUROPE
Stromberg said development of BP's retail network in East Germany was the focal point of attempts to enter new markets in Central and eastern European countries.
In Hungary, BP has spent $30 million since 1990, building a chain of 18 gasoline stations, 10 of which are in or near Budapest and the rest in western Hungary.
In the Czech Republic, BP owns two service stations and has won some agreements to supply aviation fuel at Prague airport.
In other Central and eastern European countries, BP has started marketing activities mainly through its lubricants, aviation, or marine business.
"We are monitoring the political and economic environment in these countries for signs of permanent developments that would encourage us to increase our engagement in their markets," Stromberg said.
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