Executive Director Basit Hassan said Hi-Tech has a strong brand image in northern Pakistan, and should have the same advantage in the Afghan market because its demographics are similar.

Apart from that, the weather conditions and terrain of Afghanistan gives an edge to Group III base oil products because of their very high viscosity index, shear stability and lower pour point, Hassan told Lube Report Asia in an interview conducted by e-mail. SK is the worlds largest supplier of API Group III base stocks.

Hassan said Hi-Tech has exclusive rights to sell SKs Zic-branded lubricants in Afghanistan and expects to start its operation there by the fourth quarter of 2016. The subsidiary will focus on sales of engine oils for diesel- and gasoline-powered vehicles, along with transmission fluids, greases and coolants.

Hi-Tech plans for its subsidiary to handle sales directly in the northern part of Afghanistan and to appoint distributors in other areas.

Hassan stated that Afghanistan meets its lubricants requirement through products that are imported both by legal and gray channels. Most lubricants enter under the Afghanistan-Pakistan Transit Trade Agreement, which exempts them from tariffs, though an estimated 30 percent to 40 percent of the volume goes back to Pakistan, he added.

Afghanistans business-to-business market for automotive engine oils is dominated by products meeting ACEA specifications developed in Europe, but the aftermarket generally uses North Americas API standards. The most popular products are 15W-40 heavy-duty diesel engine oils meeting the API CH-4 spec, and 10W-40 oils that meet API SL or 20W-40 and 20W-50 SG oils for gasoline-powered cars.

Hi-Tech will be competing with Total, Chevron, United Arab Emirates-based local blenders and products smuggled from Russia and other member countries of the Commonwealth of Independent States. Hi-Tech expects the proximity of its blending plant, located in northern Pakistan, will give it the advantage of lower transportation costs.

Afghanistans lubricants demand is estimated to be around 45,000 to 50,000 metric tons per year, and Hi-Tech intends to gain a market share of 5 percent to 7 percent in three to five years, Hassan said.

Hi-Techs board also recently resolved to establish an oil marketing company in Pakistan to enter the fuels market.

Fuel stations give a natural diversification advantage to HTL, Hassan said. We can not only enjoy margins in fuel but also leverage it through our strong brand presence. We will also be opening some of our service centers in these fuel stations.

Demand for lubricants has increased in Pakistan due to the growth in the number of automobiles, both from local factories and imports, and Hi-Tech aims to capitalize on this.

Pakistans fuel market is exhibiting a strong growth rate in motor spirit and high-speed diesel, and with an increasing car population, [development of the] China-Pakistan Economic Corridor, government deregulation and increasing margins for oil marketing companies, we think its a good time to venture into [the] OMC segment, Hassan stated.

Hi-Tech, which sells lubricants through more than 150 distributors across Pakistan, currently claims a 5.5 percent share of the engine oil market. The company recently raised about Rs 1.81 billion (U.S. $17.3 million) through its initial public stock offering. Hassan said it plans an initial investment of Rs 700 million to open up to 175 retail outlets over a three-year period beginning in the second quarter of 2017. Those facilities will be in 11 major cities, including Lahore, Gujranwala, Faisalabad, Islamabad and Karachi. Some outlets would be wholly owned and the rest would be rented.

Our initial focus will be on high-speed diesel and motor gasoline, and eventually we will be selling furnace oil, Hassan said. The company aims to gain 1.5 percent of the fuel market by end of the third year and hopes to generate more than Rs 6 billion in revenues during the first five years, according to its prospectus.