The relationship between Oman LNG and HSBC came about through HSBC’s November 2012 merger with Oman International Bank, of which the company was already a client.
This represented a major step change in HSBC’s presence in Oman: its balance sheet in the country increased by a factor of four, branch numbers went from five to 85, while staff numbers increased from 300 to 1300.
At the time, Oman LNG’s accounts payable was entirely paper-based, with the company issuing written instructions to Oman International Bank for all outbound payments.
Unfortunately, some payment instructions contained obsolete payee bank details (such as obsolete SWIFT codes for banks that had since merged or been acquired).
This, combined with the need to train new personnel at the bank, created a challenging situation that had reputational implications for Oman LNG with its suppliers regarding payment punctuality.
By early 2013, HSBC’s engagement of specialist training personnel had begun to remedy this position, but by then the relationship with Oman LNG had lapsed.
In common with other government controlled entities in Oman, Oman LNG places a strong emphasis upon being best in class in all its activities.
Therefore, the company is always looking to hire the best talent and employ the best business processes, and also benchmarks itself against leading global corporations.
As part of this process, in October 2013 the company embarked upon a re-evaluation of its cash management capabilities and technology, plus its banking partners. This process involved an external IT consultant tasked with examining all potential partner banks’ cash management technology.
HSBC was invited to participate in the process, which included an intensive review of its capabilities.
“Our independent consultant examined a number of banks in detail and scored HSBC top in all categories, including electronic banking platform, security and product capability,” says, Salim Al Bahri, Treasury Manager at Oman LNG.
“Particularly as regards security, other banks had in-house developed systems, but these were not as well-proven as HSBC’s. This was very important for us in view of the cyber-attacks that have taken place against corporates in the region.”
As a result of this, in early 2014 Oman LNG appointed HSBC as its cash management bank, opting in the first instance to adopt HSBCnet as its online banking platform.
HSBC’s selection was partly driven by the positive feedback that Oman LNG received from existing HSBC clients, such as some of its shareholders and the CFOs of other leading oil and gas companies in the region.
Much of this feedback focused on the benefits of HSBC’s electronic cash management solutions, including automation, eradication of paper, error minimisation, plus the opportunity to redeploy staff to more valueadded roles.
Another important factor in HSBC’s selection was the strongly affirmative recommendation from the independent external IT consulting firm mentioned above.
“In view of the previous difficulties in the HSBC relationship, there was considerable internal resistance to the bank’s reappointment,” says Salim Al Bahri. “Nevertheless we took the view in treasury that the evidence gathered by our external consultant was so overwhelmingly positive that there really was no logical alternative. With the benefit of hindsight, it was clearly the right decision to be persistent and proceed with HSBC.”
The implementation process, including integration with a simultaneous implementation of Oracle, only took some five or so weeks including testing and permissioning, with Oman LNG going live on HSBCnet in early 2014.
“Our shareholders were impressed at the speed of the implementation,” says Salim Al Bahri. “Post-implementation we have also been pleased with the quality of support, with any potential issues we raise being swiftly resolved.”
The focus to date has been primarily on payables, which are funded by (typically fortnightly) receipts that are paid to a third party bank. The required total amount for local expenses such as plant and salaries are then remitted from this bank to the company’s HSBC account in Oman for onward distribution to payees.
In parallel with bank selection, the company also chose a new Enterprise Resource Planning (ERP) system - Oracle - that it would implement in parallel with HSBCnet.
An essential part of this process that would be critical to the success of straight through processing (STP) was that the company took the opportunity to clean up its vendor database, and especially the obsolete vendor bank details that had previously proved problematic.
The new arrangements have transformed Oman LNG’s accounts payable processing. The company is making 700-800 telegraphic transfers per month, in addition to some 2000 Automated Clearing House (ACH) payments for lower value items. This is being achieved with minimal human intervention thanks to the integration of Oracle and HSBCnet.
After a payment run has been authorised and executed, accounts payable personnel download the company’s SWIFT MT940 bank statement from HSBCnet and upload it into Oracle for automated reconciliation in the general ledger.
The cost savings achieved have been very substantial and the significant time saving has enabled the company to reassign accounts payable staff to more worthwhile roles than moving paper or chasing errors. A significant proportion of this time saving has arisen from the sharp reduction in vendor phone calls relating to outstanding payments.
By the same token, vendor relations have also improved, as vendors are now comfortable that they will be paid punctually under the new electronic regime. A further practical benefit is that payment authorisations do not have to be conducted in the office, but can be done by smart phone while travelling if required.
Overall, Oman LNG has achieved a major improvement in accounts payable efficiency.
“The achievement here has been extremely pleasing,” says Salim Al Bahri. “It has already put us in a market leading position – particularly as regards auto reconciliation of our accounts payable.
"We have saved both time and money by moving from paper to electronic payment. It used to take several days to process a batch payment manually and now it takes just a few minutes, which has also boosted our reputation in the marketplace for prompt payment.
"Reporting is also excellent, as is visibility of our cash position. Nevertheless, despite these achievements, we want to do more."
"As our Oracle server has now passed extensive penetration testing, we are now moving to the next step and intend to build on our progress to date by switching to HSBC Connect, HSBC’s host to host e-banking channel.”
This will completely automate Oman LNG’s payment processing from end to end. Payment files will no longer need to be manually uploaded and authorised; additionally MT940 bank statements will be automatically downloaded for reconciliation with the general ledger in Oracle.
Another planned innovation is that Oman LNG will dispense with paper remittance advice notes in favour of email. This will further improve efficiency and reduce costs, as well as helping vendors wishing to operate their accounts receivable electronically.
In addition, Oman LNG is keen to take things further in areas such as mobile banking.
“Senior finance personnel spend a lot of time on the road, so they need to be able to do things such as approve payment runs from wherever they happen to be, rather than having to be in the office,” says Salim Al Bahri. “This is therefore something we want to explore with HSBC.”
Oman LNG has seen a dramatic advance in its accounts payable. From an expensive, paper-based and error-prone process, it has been transformed into a market leading electronic operation.
Costs have been minimised, efficiency maximised and the company has the peace of mind that its payment process is highly secure and the CFO no longer needs to be in the office to conduct authorisations and check that all is running smoothly - it is.
One of the areas where HSBC scored highly in Oman LNG’s bank selection process was security, with the company’s external IT consultant flagging HSBC’s PGP-based security mechanism as by far the best of the banks participating.
This was particularly relevant to the selection, as Oman LNG places great emphasis on the importance of payment security. Using the PGP option offered by HSBC, when a payment file is downloaded from Oracle it is automatically encrypted by a PGP application which sits on the ERP server.
This means there is no opportunity for anyone to tamper with the payment file in its journey between Oracle and the accounts payable authorisation screen. (Oman LNG has multiple levels of payment authorisation depending upon payment type and value.)
The transactions are visible on the screen, so they can be either authorised or rejected, but they cannot be altered in any way. Any attempt to change the payment file will corrupt it, making it both impossible to process, as well as making the tampering self-evident.
Once the payments are authorised, the encrypted payment file is ready to be sent to HSBC for execution. When the encrypted file is uploaded onto HSBCnet, the PGP key embedded within it is matched against the corresponding key on the HSBC server.
A successful match allows the file to be decrypted automatically and the payments made. The end result is that Oman LNG is using best security practice for its payments processing, because the use of PGP effectively excludes any possibility of payment files being modified illicitly.
When Oman LNG migrates to HSBC Connect, the payment process will essentially remain the same as regards security and the use of PGP. The only difference is that the manual authorisation of payment files will no longer be needed in a host to host environment.
Oman Liquefied Natural Gas LLC (Oman LNG) is a joint venture company established by a Royal Decree in 1994 with its head office in Muscat. The Company engages in the business of producing and selling Liquefied Natural Gas (LNG) and its by-product, Natural Gas Liquids (NGLs).
The company has three liquefaction trains at its site in Qalhat near Sur with a nominal capacity of 10.4 million tonnes per annum. As of September 1, 2013, Oman LNG officially integrated with Qalhat LNG, with the integrated entity now operating under the name of Oman LNG.
Oman LNG’s source of feed gas, totalling some 34 million cubic meters per day, is the Central Oman Gas Field Complex, which is operated by Petroleum Development Oman (PDO) on behalf of the government.
The company’s major overseas customers include Korea Gas Corporation, plus Osaka Gas and Itochu Corporation in Japan.