Litro Surakeeme National Unity raises concerns about the proposed joint mechanism
The Sri Lankan LPG industry has been facing some of its most challenging times ever – some of it seriously undermining the growth and the scope of the industry as a key energy sector for the island.
There are two key players in the LPG sector in Sri Lanka. Litro Gas Lanka, with a heritage of 150 years going back to the days of the Gas & Water Co and the Gas Works Street. Since being acquired by the Government in 2010, Litro Gas Lanka has grown with a 80% market share to emerge as the industry’s leader in both domestic and industrial segments, managing an efficient operation with a staff of 220, contributing a turnover of Rs 47 billion to the country. The company offers direct employment to over 2,000 people through 42 distributors, while empowering a network of 14,000 dealers. In addition, there are 1,500 Litro Gas Lanka home delivery hubs where indirect employment takes place.
Laugfs Gas commenced operations 20 years ago initially as an auto gas alternative before moving into LPG. Today, the heavily debt ridden company owns tankers and a large LPG storage facility at Hambantota, widely seen globally as a non-performing asset but finds itself at the centre of controversy brought on by the fact that the common platform recommended for the LPG industry is alleged to favour Laugfs.
“ In order to strengthen Litro Gas Lanka as the state owned national LPG supplier, we have recommended several solutions to ensure the way forward for the LPG industry and incorporate Laugfs to ease their 40 billion debt raised without substantiated collateral from several banks, mainly the state owned banks. Among those solutions have been our request to purchase the facility outright as a joint venture with an international industry leader or to lease their terminal for a 10 year period. We have even suggested and recommended taking over their entire LPG operation to ease their burden.” Says J.A.S Terrence Appuhamy of Litro Surakeeme National Unity organization.
He adds that with a 8,000 MT storage facility currently, Litro Gas Lanka fulfills the market need for 33,000 MT without any interruption to their supply chain ; in fact, the Consumer Affairs Authority of Sri Lanka has recognized Litro Gas Lanka’s cost leadership capability, having acknowledged their cost efficiency as the best in the industry.
“In fact, during our entire history, we have not had any supply issues. We have even supplied LPG to Laugfs to meet their requirements and overcome their supply issues.”
Questions are asked as to why Laugfs needs a 30,000 MT facility when as the industry leader Litro Gas Lanka manages with a 8,000 MT facility to meet the needs of 80% of the market share. The company meets the domestic LPG needs of over 4.0 million households in Sri Lanka while providing LPG to the industrial sector – in 2020, in order to offer Covid-19 support for affected industries, Litro Gas Lanka reduced the prices of industrial LPG as a special incentive.
Appuhamy points out that if needed, Litro Gas Lanka has the potential to obtain floating LPG storage options that can store up to 40,000 MT, without any additional cost. Competitive rates for such an operations have already been offered to the Company as well.
As the industry leader, Litro Gas Lanka obtains LPG from the Government of Oman on a two year contract which stabilizes prices. It also ensures high quality and optimum LPG mixture which doesn’t happen when LPG is bought from any supplier with a floating LPG cargo at spot prices, adds Appuhamy.
“Our Kerawalapitiya freight rate is USD 105 per MT and has been stable at this price throughout the contract period which continues until Q 01 2022. In fact, we have got even better prices due to our market dominance and established supply channels and even this rate can be re-negotiated.“ he adds.
“ We know competition buys LPG at spot prices sometimes as low as USD 80 per MT but we don’t know the level of quality. The trouble with spot cargo purchases is that often what is available as spot cargo is low quality LPG loaded a long time ago.”
Appuhamy reiterates that although Laugfs has put up a mammoth storage facility at Hambantota, the freight prices will still be impacted since the LPG unloaded at Hambantota has to be transported to Kerawalapitiya, Litro Gas Lanka hub in the western province, where the LPG demand is experienced most. “In fact, such detours would not only raise the prices but cause delays and issues – for an instance, there’s only one loading arm at the Hambantota for Laugfs terminal ; if something goes wrong, the market would face shortages of LPG.”
He and the Litro Surakeeme National Unity organization point out that weightage given based on storage facilities alone and not the market share and customers serviced, can overshadow the entire LPG industry in the country. Added to that is the burden of servicing debt taken to finance the large facilities of Laugfs LPG set up, which can further impact the industry potential.
Litro Gas Lanka on the other hand , he says, stands on a premise of consolidating the strength of its well trenched brand name, customer value proposition and the network it has succeeded in building over the years.
It must be noted that 30% of the customers in Sri Lanka use LPG gas alone as cooking fuel – another 52% of customers who use dual fuel, one of which is LPG. For these customers and the industrial segment who relies heavily on LPG, the way forward for LPG is critical.
Analysts believe that the optimum path forward is to acknowledge the industry strength of Litro Gas Lanka as the LPG sector leader and to ensure a level and a balanced playing field that will not favour one party over the other.