For years the board and management of Lake Asphalt TT Ltd knew the company needed to diversify its product offerings. The company started making incremental changes to its strategy, attempting a shift from its primary business, selling the bitumen from Petrotrin’s Pointe-a-Pierre refinery. (Bitumen is a by-product of the refinement of crude oil. It is a thick, heavy, tar-like substance used primarily in road paving and roofing.)
Then, when the Government made the surprise decision to shutter the refinery by November 30, last year, Lake Asphalt’s turnaround was forced into immediate transformative overdrive.
“Once we were informed of the closure of Petrotrin, we had to quickly respond with immediate and long-term strategies,” CEO Roger Wiggins told Business Day during an interview at the company’s headquarters in La Brea, overlooking the Pitch Lake.
A shock to Lake Asphalt’s system is an understatement. “It did impact our revenue stream negatively,” Wiggins admitted. At least 60 per cent – and as high as 80 per cent – of Lake Asphalt’s business was marketing and distributing Petrotrin’s bitumen to the domestic market. Part of the attraction was the highly subsidised cost at which it acquired the product – about 40 per cent less than market price.
With the refinery’s closure, the immediate issue was finding new bitumen suppliers, regionally and domestically. The main criteria are price, reliability, quality and lead time (for delivery) and the company has approved about six to eight suppliers. Currently the company receives product from two – Asphalt Processors Inc in Barbados and Termcotank SA out of Switzerland.
Even more daunting is the potential loss of its hold on the domestic bitumen market. The company has lost its comparative advantage as the preferred domestic distributor for bitumen. Now that the market is open, its previous customers no longer need Lake Asphalt as its intercessor.
“Customers now have options. Customers could have gotten bitumen from us as the sole distributor. Now the market is open to them as well. We go to market as everyone else. And now we have a cost structure so the prices we charge may be higher than someone who can just import it.”
Trinidad Lake Asphalt
What Lake Asphalt can offer better than anyone else in the world, however, is its flagship product, Trinidad Lake Asphalt (TLA), a proprietary blend made from the naturally occurring asphalt in the Pitch Lake.
Natural asphalt is mined from the lake, processed and then shipped in heated drums around the world. Asphalt blends from the Pitch Lake have been used to pave the driveways of Buckingham Palace, runways in Germany and the Olympic Village in Beijing.
TLA is a naturally-occurring organic compound, which makes it easier to blend with bitumen and other natural and organic binders. Bitumen blends that have been modified with TLA have been proved to be superior to blends using synthetic polymers, are longer-lasting, and better able to withstand wear and tear and extreme temperature changes.
The company’s challenge is that the product is not used on all roads, but rather specialty surfaces like airport runways. TLA is, then, a niche product, and more expensive than regular road pavement. Even in TT, despite being the home of the Pitch Lake, TLA is not mandatory for road surfacing. When asked why, Wiggins chuckled, saying his guess is as good as anyone else’s.
He does note, though, that shipping the product is complicated. The company has therefore been looking for ways to make that easier.
TLA needs to be shipped in sealed containers and traditionally, the product needs to be heated to steam the excess water out. Now, with the help of local chemist, Dolly Nicholas, whose work with pitch is legendary, the company has come up with a way to ship TLA in a powdered “cold-mill” form that is cheaper and easier to blend.
“It’s an innovation that’s taken two-and-a-half years to conceptualise in the lab. We are at the final stages to move from research and development to commercialisation. We do believe and are committed to this product once it’s offered to the market because of price and volumes and reliability. We believe we will be able to retain and grow markets as well as penetrate new markets,” Wiggins said. The cold mill TLA plant is estimated to cost $88 million, and lab testing equipment is estimated at $9.2 million.
Investing in R&D
Cold-milled TLA is just one of the many innovations to come out of the Lake Asphalt lab. The company also offers a wide array of paints, sealants and emulsions all made from asphalt.
“We have a portfolio of products so we must now put an emphasis on the other products we sell. Most people may think its only bitumen we sell but there are others,” Wiggins said.
He acknowledged that the company was on the back foot and has taken too long to react, but it is trying to make up ground. Lake Asphalt has an internal lab for quality control and quality assurance but, Wiggins said, while R&D is there and important, the company doesn’t have all the resources it needs, and so is open to partnerships.
“(We) did not invest in research and development quickly enough and because of over reliance on bitumen. As such, competing products were able to penetrate the market faster and deeper than we could.”
Polymers are the prime example, because despite Lake Asphalt’s superior product, it finds itself at a disadvantage trying to take market share from the more established polymers.
The company needs to diversify, and quickly. Lake Asphalt, Wiggins said, is looking at a business model that is more than just a reseller. Lake Asphalt wants to expand its laboratory facilities, he said, as well as perhaps even add its own refinery to manufacture its own bitumen. It is also looking at upgrading and modifying its existing LASCO (the company’s commercial brand name for its paints, primers and sealants) manufacturing facilities. It is also trying to encourage entrepreneurship and possible commercial partnerships, as evidenced by its recent agreement with UWI St Augustine to market the university’s plastic cement and primer, both of which are also asphalt based.
Wiggins also admitted that marketing needs to step up to promote the LASCO brand, especially within the domestic sphere. People are either unfamiliar with or sceptical about the brand’s quality, but Lake Asphalt is confident that its products can compete against any international brand – and outperform.
The company’s LASCO paints are good for households, while the sealants are well suited for different types of waterproofing, and filling cracks and seams. The underbody coats are good for protecting vehicle undercarriages as well as for sound dampening effects, and pipeguard can be used to protect metal tubing from rust.
State enterprise survival
Lake Asphalt is a 100 per cent state-owned company, although 49 per cent was earmarked to be divested to an international strategic partner, according to the 2019 State Enterprise Investment Programme (SEIP). That has been put on hold for the time being as the company regroups and reorganises its strategy.
And while Wiggins appreciated the State’s monitoring of the company, and while the relationship with its sole shareholder is good, there are nonetheless challenges. For one, it needs to make its pitch to the Ministry of Finance like everyone else if it wants to benefit from the SEIP. So far, though, projects for upgrades and new plant construction are on hold.
Being a state company also may have led to some complacency regarding business models that the company has to now scramble to reverse. “Traditionally (we could have operated in) niche markets and we would have been satisfied. Bitumen, we could have sold that at an internationally competitive price but we didn’t because we saw our mandate as being the single distributor arrangement with Petrotrin so we only sold local.”
There are benefits though, where through government to government arrangements, the company has signed distribution agreements with China for use of the product.
It’s not that the company has been sold to China, Wiggins assured, just that China now has the option to use Lake Asphalt products for its constructions projects. But it also has the option of using the polymer competition. Wiggins admitted that the agreements, one signed in 2011 and another similar one signed last year, have not taken off the way the company had hoped, but it’s good that it’s there as an option.
China did, however, make good use of the company in the run up to the Beijing Olympics in 2008. That project required over 30,000 metric tonnes of TLA – equivalent to the company’s annual output. With prices for TLA ranging from US$360 ($2,440) to US$420 ($2,847) per tonne, Lake Asphalt earned nearly $70 million that year.
On average, though, the company’s revenues range from $4 million to $20 million, although in the past it could have been in the hundreds of millions, and that momentum could have continued if only the company had reacted earlier to changing trends in the industry and being more competitive. Losses, he estimated, were about $4 million to $5 million annually. The company isn’t profitable, he admitted, but it’s trying to get there. He also acknowledged the company's tardiness in preparing its audited financial statements. The latest published statements are from 2007, but Wiggins said the company's auditors were on site and working to clear that backlog. So far, they've completed up to 2013, and are working on 2014-2019 statements.
In the short to medium term, the company’s strategy is “maintain and sustain,” he said, but in the long term, it wants to introduce new products and build new plants to increase its output and market share for TLA and LASCO products.
“(We are) looking at bitumen differently – what we do with it, how we market it and where we offer it. Growth is something we need to aspire to. I concede we were over reliant and should have put more of an effort into other things. We have the product. What we need now is the right R&D, partnership and strategic alliances.”