Sun | Aug 9, 2020

Another venture enters autogas market

Published:Wednesday | December 4, 2019 | 12:10 AMNeville Graham/Business Reporter
The Autogas Jamaica Limited complex in St Ann.
The Autogas Jamaica Limited complex in St Ann.

The market for liquefied petroleum gas, LPG, as motoring fuel has a third player, Autogas Jamaica Limited, AJL, a St Ann-based company that has emerged from its testing phase and is now fully operational after two years.

AJL both retrofits vehicles to run on LPG and supplies them with gas.

The two others in the business are gas supplier Texaco and its partner Technigas, which handles the retrofitting of vehicles to run on LPG.

Autogas Jamaica’s Managing Director and partner Rohan Brown, says that since 2017, his company has run a pilot under which 200 cars were retrofitted for LPG – the results of which have convinced them that a viable market exists.

“We’ve done our marketing on a one-on-one basis so far. We went to the target market and introduced the product, and did our tests, and now we’re ready to move,” Brown told the Financial Gleaner.

As to what approvals the venture has obtained, Brown said they got approval from two municiapl councils, but that, otherwise, no special permits were required.

Checks with Bureau of Standards Jamaica and the National Environment & Planning Agency, NEPA, affirmed his claim. However, both agencies have indicated to the Financial Gleaner that there is regulatory dissatisfaction with the status quo.

“The agency has not made a final decision regarding operations of this nature. We, however, have a legal position that we are reviewing to determine whether we will need to amend the permits and licences regulations,” NEPA said via email on Tuesday.

“For now, we are allowing the operation to continue, especially if it is a part of a permitted establishment,” the planning agency said.

Autogas Jamaica was registered in February 2017, Companies Office of Jamaica records show, with Wayne Cummings as the sole director and shareholder. Both Brown and Cummings, who is an engineer, have also collaborated on other ventures as partners.

When the Financial Gleaner reached out to Cummings for this story, he was on extended travel in China and referred queries to Brown.

AJL’s business model is predicated on locking in customers with a relatively low-cost fee of $30,000 for its fuel kit. Brown says the company does not sell the kits. Instead, the $30,000 is charged as an installation fee that is said to be a fraction of the true cost of the kit.

But the equipment is only compatible with the gas pumps that AJL will operate, meaning that the retrofitted vehicle would only be able to top up on LPG autogas from the network that Brown and his partners are about to grow.

Comparatively, the Technigas solution involves the sale of the kit, which can cost anywhere between $150,000 and $320,000, with the system paying back for itself in about 18 months in lower fuel costs. That system does not tie the motorist to Texaco as the source of LPG autogas fuel; but as a practical matter, the marketing company is currently the only player with the capacity for multiple pumps, which are technically called skids.

The ‘one-on-one’ marketing strategy employed by AJL targeted taxi operators.

“We built the first station in Ocho Rios, brought in the product, did a number of installations and observed the performance of the vehicles; and in doing so, we added our own innovations to the system that would make for better operation,” Brown said.

One of the early users, Fitzroy Reid, told the Financial Gleaner that he was the second person to sign up for the AJL kit two years ago. Reid, who has been a taxi operator for 17 years, says he plies the St Ann’s Bay to Discovery Bay route, which is mostly flat terrain.

“I’ve been running taxi since 2002, and since I’ve been running this gas, it is the best thing that ever happened to me and my business,” he said. “Each day, depending on where I go, I save between $1,500 and $2,000 on my fuel expenses.”

Mary Nelson, who plies the Exchange to Ocho Rios route with her Toyota Succeed, says she began using the autogas system a year ago, with no regrets.

“I use it almost all the time. Only when I start up in the morning I will use regular gas, but as soon as I get going I just switch over, and I run all day up and down the route,” she said, while filling her taxi with customers for a regular run.

Users of the Autogas Jamaica system have to fill up at one of two stations: one in Ocho Rios and the other in Linstead, St Catherine.

AJL sources LPG from state refinery Petrojam. It sells fuel to motorists at $120 per litre, a price that Brown says they have managed to maintain over time because the cost of LPG is not as volatile as other fuels. Gasolene retails for around $142 to $180, depending on octane levels.

The users of AJL’s kit represent a captive market for the company, but Brown says AJL is unlikely to hike prices on them.

“If we raise the price, we’d be giving away our competitive advantage, so it’s not in our best interest to do that,” he said. “On our part, it is a deliberate strategy to set the prices low since we’ve been operating,” he added.

Brown says the company chose Ocho Rios as its starting point because of the confluence of taxi routes linking with the parishes of St Mary, other points in St Ann, and Trelawny.

The financing of the Autogas Jamaica operations has been financed out of pocket and from contributions from friends and family, said Brown, but he would not disclose the size of the investments to date, nor the cost of expansion, which includes plans to roll out three more gas stations by mid-2020.

“There are plans for a smaller one in Kingston and another larger one shortly thereafter. That location is likely to be on Spanish Town Road. By July 2020, we will be looking to set up another station in St Ann’s Bay due to customer demand,” Brown said.

Brown also declined to comment on the source of AJL’s autogas kits, saying it was a trade secret.

As for why it took the company two years to phase into the market, Brown said it was due to the mode of financing.

“One simple reason is that there is no debt in this company. This is all our own sacrifice. So we haven’t moved with the speed of, say, an enterprise that went out and got venture capital, and so on,” he said, adding that the process also included tests, adaptations and modifications to the product.