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Talk to companies selling petrol in Cambodia and you will hear tales of fraud, doctoring the product, under-delivery, irrational taxation and margins pared to the bone. It is enough to put off any foreign investor, but apparently it does not.

"You can't ignore a market of 10 million people in a high-growth area," said John Raeside, general manager of Caltex Cambodia. The United States-based Caltex is the latest to enter the fray, with plans to open its first station in June. Raeside was optimistic the company would be seeing a return within five years on a planned investment of US$20 million.

Those who have been around longer are less sanguine. "There's a cake here, and it is a small cake," said Edgar Chua, general manager of the Shell Company of Cambodia, the first foreign company to re-establish itself after the civil war. "Either everyone gets a small slice - in which case we all get hungry at some point - or we fight it out and someone leaves."

Carving up the cake at the moment are private Cambodian company Sokimex, which dominates the market in the provinces, Malaysia's Petronas, the Petroleum Authority of Thailand (PTT) and three Western companies - US-based Shell and Caltex, and the French company Total. They all have big plans, at least on paper. "But in truth, the market is too small for the stated ambitions of all the companies, including ourselves," Chua said.

Most of his competitors agreed. "Frankly, we miscalculated," said Total Cambodge director-general Andre Camp, whose company runs eight stations. In theory, Total plans another 11 stations by year-end, with the total rising to 30 by the end of 1997. Camp was doubtful about achieving that target. "Service stations cost a lot. The margins here are abnormally low because of fraud and competition."

Margins are squashed by logistics, tax and plain old theft. A favorite trick is to recalibrate the petrol pumps.

A Total study of all the petrol stations in Phnom Penh showed that customers were getting an average of nine percent less petrol than they paid for. Oil companies try to avoid playing the game by calibrating pumps regularly and then sealing the meter, but even that is not always enough.

"We have had at least one case of someone dismantling the whole pump and changing the gauge from inside," said one retailing manager.

The companies which try to deliver an honest liter have complained they are injured by under-delivery because those stations that succeed in saving on volume can cut their prices to levels that would be unprofitable for the straight dealers.

A little cheating in a high-volume station can go a long way. One international company recently found that a whole tanker of petrol had essentially been stolen. Its records showed that the station in question had sold a given amount of petrol and therefore was due for a new delivery. In fact, the station had been giving its customers less than they paid for, and so had no storage capacity when the new delivery arrived. Result: The station operator simply sold the delivery to an independent dealer down the road, making a tidy profit.

Another ruse, one encouraged by the taxman, is to mix kerosene with the petrol. In most other countries where duty on petrol is paid according to the volume recorded at the pump, this would give only a minimal saving. In Cambodia, however, duty is collected on the product as it hits the quay - US$0.20 on a liter of gasoline, just US$0.06 on a liter of kerosene. Since taxes make up around half the cost at the pump, mixing in a low-tax substitute is good for the retailer's profit margin, however bad it may be for the customer's car.

Many in the industry have criticized Cambodia's tax regime, which pushes prices to the top of the regional charts, as self-defeating. High taxes encouraged smuggling and therefore deprived the treasury of revenue, they said.

Cambodia's borders are notoriously porous, although some prog ress has apparently been made in reining in illegal imports. The Customs Department said the country imported 465,000 ton nes of petroleum products in 1995, a 34 percent increase on the previous year. "There is no way that the market grew that much," said Camp, estimating market growth of 10 to 15 percent for last year and for the foreseeable future. "It must be that fraud has diminished," he said.

There are currently four separate taxes on petrol. Some are irrational, based on a "notional" value of petrol that bears no relation to the market price, and all are interdependent. Said Chua: "It would be so much easier if there was a flat tax. How much do you want to raise, US$0.20 a liter? Fine, US$0.20 a liter at the pump. End of story. It would take the advantage out of mixing in kerosene, too."

Even without kerosene mixing, quality is a problem. Shell and Total control their product by shipping it straight from their Singapore refineries into their own storage depots in Cambodia. The only other company with storage facilities is Sokimex, which imports from Vietnam.

The price difference between Vietnam and Singapore deliveries is vast. The largest shipment that can be brought into the southern port of Sihanoukville, where Shell has its terminal, is around 2,500 tonnes. The biggest shipment that can be carried up the Mekong River to the Total terminal varies between 2,500 tonnes in the rainy season to 1,500 tonnes when water levels are low.

Since chartering a tanker from Singapore costs around US$60,000, that adds up to freight costs of US$23 to US$38 per tonne, depending on the season. Vietnam, by contrast, can bring in shipments of up to 20,000 tonnes from Singapore, at a freight cost of around US$10 a tonne. The petrol is then loaded on to 1,000-tonne barges for the short trip up the Mekong.

Cheaper it may be, but quality is hard to control. "There is some very good quality petrol coming into Vietnam," one industry executive said. "The trouble is, the Vietnamese have a tendency to mix any old crap together in storage, so in the end you never know what you are getting."

This threatens to become a major headache for Caltex, which guards its reputation for quality but has no depot of its own. Its investment plan includes some US$8 million for a depot next to Shell's at Sihanoukville but the project has not yet been given the final nod from the Caltex board and will not be ready for at least a year.

Sokimex, which sells to most of the retailers without their own storage facilities, said it had overcome quality difficulties with strict checks and controls and was now taking advantage of its lower freight costs to undercut its international rivals.

"There is no quality difference. We can sell cheaper than the others because our costs are lower. We are Cambodians, we don't have expensive expatriate salaries and plane fares, and we are happy with smaller profits," said Sokimex vice-director Sorn Sokna.

Most of Sokimex's 225 stations around the country are franchised, with the owners bearing land and development costs and making around US$20 a tonne on the petrol they sell, probably the highest margin in the business.

"It is normal that if someone invests their own money they make higher margins. The risk for the company is much lower," said Camp.

Sokimex, which is about to acquire the state-owned fuel distribution company Compagnie de Kampuchea des Carburants (CKC) for US$10.6 million, supplies the considerable fuel needs of Cambodia's army and police as well as the state electricity company. Where will it get the cash? "That's easy, we don't need cash. The government already owes us US$25 million," said Sorn Sokna.

Land costs can be a big ticket for foreign companies. Newcomer Caltex was widely rumored to have spent US$4 million on three city-center sites in Phnom Penh. Raeside would not give the actual cost of the land but suggested it was more than US$1 million.

To recoup that investment, Caltex will have to eat much of its competitor's cake. Empty forecourts of flash new petrol stations around Phnom Penh notwithstanding, the US company thinks the plethora of roadside stalls selling petrol from old beer bottles indicates a market that is far from saturated.

Bottle stalls supply motorbikes mostly, and with 400,000 registered bikes that market is numerically 10 times as big as the registered car market. Caltex said it hoped to sell to motorcyclists even though it has no plans for the hand-pumped drums that continue to be in favor at even the smartest stations. "Those are just tacky," Raeside said, adding: "In terms of quality, safety and the environment, those bottle sellers should not be there. And when they are gone, Phnom Penh will need a lot more petrol stations."

But Chua shook his head in wonder at the optimism in a market where Shell, with 37 stations already under its belt, would consider itself lucky to turn a profit in 10 years. "To those guys who want to come in here, good luck," he added. "This is still Cambodia. Let's not forget that."

Copyright 1996 Asia Times.

(c) 1996 Chamber World Network International Ltd.