By Yakuta Dawood
[caption id="attachment_148688" align="alignright" width="181"]
Litro Gas Lanka Ltd. Chairman and CEO Anil Koswatte[/caption]
The prevailing pandemic has led to increased prices of commodities, and many countries have been enduring this price volatility. A month ago, the Sri Lankan Government revised local fuel prices after maintaining the price for 21 months as the global prices were continuously soaring. The question that now arises is, will the Government revise gas prices too?
Responding to this question, State Minister of Co-operative Services, Marketing Development, and Consumer Protection Lasantha Alagiyawanna assured that the Government will absorb the burden and will not revise gas prices in order to protect consumers.
“The Cabinet has taken appropriate measures to facilitate both suppliers and consumers. Hence, gas prices will not be revised despite the surge in global price levels,” Alagiyawanna said, speaking to us.
Accordingly, on 21 June, the Cabinet of Ministers granted approval to restructure the local liquefied petroleum (LP) gas industry while maintaining the price of Rs. 1,493 for a 12.5 kg LP gas cylinder as currently prescribed by the Consumer Affairs Authority (CAA).
[caption id="attachment_148689" align="alignright" width="181"]
Laugfs Gas Chairman W.K.H. Wegapitiya[/caption]
In this backdrop, local gas suppliers Litro Gas Lanka Ltd. and Laugfs Gas PLC face major challenges, as they have been incurring millions in losses the last few quarters, as the global prices are extremely high due to the current pandemic.
Speaking to The Sunday Morning Business, Litro Gas Lanka Ltd. Chairman and Chief Executive Officer (CEO) Anil Koswatte stated that despite making huge profits for the last 10 years, today, due to the current situation, the company is on the verge of incurring losses this year.
Explaining, Koswatte said that this is because the gas prices were last revised in 2019, before the presidential election, to Rs. 1,493 for a 12.5 kg LP gas cylinder, which is less than the LP gas prices at which it was sold during the year 2009.
“Twelve years ago, we were selling LP gas at Rs. 1,496. Today, it is even less than this rate, which is why we have been requesting the Government for a price revision. With the cost of production, the dollar rate, and other expenditure, the current price should definitely be more than Rs. 2,000 for a domestic 12.5 kg LP gas cylinder,” he said.
Revealing more information, Koswatte stated that the actual cost per 12.5 kg LP gas cylinder is Rs. 2,238, whereas Litro Gas Lanka Ltd. is selling it at Rs. 1,493, thereby incurring a loss of Rs. 745 per cylinder sold to consumers.
“We are confident that when the country returns to normalcy, we can have the price revised. We have the servers and a debt-free company, therefore we have to absorb the losses with our own strength and support the Government to protect the consumers,” he added.
On the other hand, Laugfs Gas PLC reported a net loss of Rs. 971.2 million for the company’s fiscal fourth quarter in comparison to the Rs. 880.6 million loss reported in the corresponding period in 2020.
[caption id="attachment_148690" align="alignright" width="247"]
State Minister of Co-operative Services, Marketing Development, and Consumer Protection Lasantha Alagiyawanna[/caption]
Speaking to us, Laugfs Gas Chairman W.K.H. Wegapitiya stated that the reason for incurring such losses is because the Government and CAA are not imposing a justifiable price increase when the world market prices are going up.
“We have already taken cost-cutting measures. We do not have answers to how we will survive until the price revision, as we are selling at a very lower cost than our purchasing cost,” Wegapitiya explained.
Even though both companies were requesting a price hike, the CAA and the Government stood firm on their decision to not increase the prices of gas. Accordingly, Prime Minister Mahinda Rajapaksa, who was also the Minister of Finance at the time, on 17 March, said that there is no need to increase the local prices of gas, as there is no shortage in the country.
What are the legal implications both firms currently face?
Speaking to The Sunday Morning Business, CAA Executive Director Thushan Gunawardena expressed numerous concerns with regard to Laugfs Gas PLC and Litro Gas Lanka Ltd. and their method of operating their businesses during an ongoing pandemic.
Gunawardena said it a recent public announcement on national television made by Litro Gas Chairman Koswatte, where he said that they are working with Laughs Gas to position gas in litres, brought a matter of concern to light. “They are directly violating the CAA Act. Two dominant companies cannot be in an agreement, as this could result in price-fixing, thereby making the people in the country vulnerable and leaving them with no option but to purchase the product,” he explained.
Furthermore, research suggests the composition of liquefied petroleum (LP) gas varies from country to country and is generally decided based on climate conditions. For example, a propane-rich mixture is used only in cold countries while a butane-rich mixture is more suitable for tropical countries like Sri Lanka. Reports state that butane has a higher fuel value than propane and makes it ideal for domestic use, as a propane-rich mixture carries a risk during handling it.
Commenting in this regard, Gunawardena said the engraved description on the cylinders of Litro and Laugfs categorically says that the weight of butane and propane has indicated a 50/50 composition. “However, this is another violation we discovered, as both companies’ samples were tested by Intertek,” he added.
Intertek is a third-party tester for almost any gas or oil-fired product safety standard.
“Litro Gas claiming that reducing butane in the new 18-litre cylinder allows for more cooking is factually incorrect, given that the fuel value per square metre of butane is higher than propane. Hence, there is a dire need to regulate the propane/butane composition in the country,” he stated.
Furthermore, explaining another issue, Gunawardena spoke about several complaints received from the general public with regard to cylinder valve leakage due to the composition change that could pose a serious hazard and possible loss of life if true.
“Section 7 (a) (of the CAA Act) notes that the objectives of the authority shall be ‘to protect consumers against the marketing of goods or the provision of services which are hazardous to life and property of consumers’. Therefore, we need to formally engage the Sri Lanka Standards Institution (SLS) to publish the required LP gas standards as per the SLS Act No. 6 of 1984 and adopt the standard under Section 12 (2) of the CAA Act by publishing a gazette informing the adoption of the standard set by SLS without further delay,” he elaborated.
Writing an official letter to the relevant authorities of Sri Lanka, Gunawardena has stated: “If we do not take action to enact new regulations for the LP gas sector to adequately scrutinise the manufacturing process, we are in contravention of the CAA Act for inaction by virtue as stated in Sections 12 (1) and (2) of the CAA Act. Hence, I would emphasise the fact that the responsibility is with us, as the CAA and the State Minister and line minister, to address the deficiencies and act on them immediately due to the risk factors typically associated with LP gas composition.”
Measures taken by CAA and Government
The recently appointed nine-member committee by cabinet members will advise on the proper restructuring of the LP gas industry to overcome losses faced by both companies.
Accordingly, their task would be to study the process of procurement, transportation, and storage of LP gas requirements of the country by Litro and Laugfs.
On the other hand, to protect consumers, CAA issued an extraordinary gazette notification directing all manufacturers and traders of gas to ensure adequate quantities of the domestic cylinders weighing 12.5 kg are available for sale at all sales outlets islandwide.
Speaking on the matter, Gunawardena emphasised that it is extremely important for Sri Lanka to have proper regulation with regard to introducing new products to the market. He said that as things stand, the companies are allowed to release a product and then inform the CAA. “However, we have to draft a new regulation. I have already informed the CAA Chairman and other relevant officials regarding this. Hence, how fast this will come into action depends on the Ministry,” he said.
Litro Gas Lanka Ltd. Chairman and CEO Anil Koswatte[/caption]
The prevailing pandemic has led to increased prices of commodities, and many countries have been enduring this price volatility. A month ago, the Sri Lankan Government revised local fuel prices after maintaining the price for 21 months as the global prices were continuously soaring. The question that now arises is, will the Government revise gas prices too?
Responding to this question, State Minister of Co-operative Services, Marketing Development, and Consumer Protection Lasantha Alagiyawanna assured that the Government will absorb the burden and will not revise gas prices in order to protect consumers.
“The Cabinet has taken appropriate measures to facilitate both suppliers and consumers. Hence, gas prices will not be revised despite the surge in global price levels,” Alagiyawanna said, speaking to us.
Accordingly, on 21 June, the Cabinet of Ministers granted approval to restructure the local liquefied petroleum (LP) gas industry while maintaining the price of Rs. 1,493 for a 12.5 kg LP gas cylinder as currently prescribed by the Consumer Affairs Authority (CAA).
[caption id="attachment_148689" align="alignright" width="181"] Laugfs Gas Chairman W.K.H. Wegapitiya[/caption]
In this backdrop, local gas suppliers Litro Gas Lanka Ltd. and Laugfs Gas PLC face major challenges, as they have been incurring millions in losses the last few quarters, as the global prices are extremely high due to the current pandemic.
Speaking to The Sunday Morning Business, Litro Gas Lanka Ltd. Chairman and Chief Executive Officer (CEO) Anil Koswatte stated that despite making huge profits for the last 10 years, today, due to the current situation, the company is on the verge of incurring losses this year.
Explaining, Koswatte said that this is because the gas prices were last revised in 2019, before the presidential election, to Rs. 1,493 for a 12.5 kg LP gas cylinder, which is less than the LP gas prices at which it was sold during the year 2009.
“Twelve years ago, we were selling LP gas at Rs. 1,496. Today, it is even less than this rate, which is why we have been requesting the Government for a price revision. With the cost of production, the dollar rate, and other expenditure, the current price should definitely be more than Rs. 2,000 for a domestic 12.5 kg LP gas cylinder,” he said.
Revealing more information, Koswatte stated that the actual cost per 12.5 kg LP gas cylinder is Rs. 2,238, whereas Litro Gas Lanka Ltd. is selling it at Rs. 1,493, thereby incurring a loss of Rs. 745 per cylinder sold to consumers.
“We are confident that when the country returns to normalcy, we can have the price revised. We have the servers and a debt-free company, therefore we have to absorb the losses with our own strength and support the Government to protect the consumers,” he added.
On the other hand, Laugfs Gas PLC reported a net loss of Rs. 971.2 million for the company’s fiscal fourth quarter in comparison to the Rs. 880.6 million loss reported in the corresponding period in 2020.
[caption id="attachment_148690" align="alignright" width="247"] State Minister of Co-operative Services, Marketing Development, and Consumer Protection Lasantha Alagiyawanna[/caption]
Speaking to us, Laugfs Gas Chairman W.K.H. Wegapitiya stated that the reason for incurring such losses is because the Government and CAA are not imposing a justifiable price increase when the world market prices are going up.
“We have already taken cost-cutting measures. We do not have answers to how we will survive until the price revision, as we are selling at a very lower cost than our purchasing cost,” Wegapitiya explained.
Even though both companies were requesting a price hike, the CAA and the Government stood firm on their decision to not increase the prices of gas. Accordingly, Prime Minister Mahinda Rajapaksa, who was also the Minister of Finance at the time, on 17 March, said that there is no need to increase the local prices of gas, as there is no shortage in the country.
What are the legal implications both firms currently face?
Speaking to The Sunday Morning Business, CAA Executive Director Thushan Gunawardena expressed numerous concerns with regard to Laugfs Gas PLC and Litro Gas Lanka Ltd. and their method of operating their businesses during an ongoing pandemic.
Gunawardena said it a recent public announcement on national television made by Litro Gas Chairman Koswatte, where he said that they are working with Laughs Gas to position gas in litres, brought a matter of concern to light. “They are directly violating the CAA Act. Two dominant companies cannot be in an agreement, as this could result in price-fixing, thereby making the people in the country vulnerable and leaving them with no option but to purchase the product,” he explained.
Furthermore, research suggests the composition of liquefied petroleum (LP) gas varies from country to country and is generally decided based on climate conditions. For example, a propane-rich mixture is used only in cold countries while a butane-rich mixture is more suitable for tropical countries like Sri Lanka. Reports state that butane has a higher fuel value than propane and makes it ideal for domestic use, as a propane-rich mixture carries a risk during handling it.
Commenting in this regard, Gunawardena said the engraved description on the cylinders of Litro and Laugfs categorically says that the weight of butane and propane has indicated a 50/50 composition. “However, this is another violation we discovered, as both companies’ samples were tested by Intertek,” he added.
Intertek is a third-party tester for almost any gas or oil-fired product safety standard.
“Litro Gas claiming that reducing butane in the new 18-litre cylinder allows for more cooking is factually incorrect, given that the fuel value per square metre of butane is higher than propane. Hence, there is a dire need to regulate the propane/butane composition in the country,” he stated.
Furthermore, explaining another issue, Gunawardena spoke about several complaints received from the general public with regard to cylinder valve leakage due to the composition change that could pose a serious hazard and possible loss of life if true.
“Section 7 (a) (of the CAA Act) notes that the objectives of the authority shall be ‘to protect consumers against the marketing of goods or the provision of services which are hazardous to life and property of consumers’. Therefore, we need to formally engage the Sri Lanka Standards Institution (SLS) to publish the required LP gas standards as per the SLS Act No. 6 of 1984 and adopt the standard under Section 12 (2) of the CAA Act by publishing a gazette informing the adoption of the standard set by SLS without further delay,” he elaborated.
Writing an official letter to the relevant authorities of Sri Lanka, Gunawardena has stated: “If we do not take action to enact new regulations for the LP gas sector to adequately scrutinise the manufacturing process, we are in contravention of the CAA Act for inaction by virtue as stated in Sections 12 (1) and (2) of the CAA Act. Hence, I would emphasise the fact that the responsibility is with us, as the CAA and the State Minister and line minister, to address the deficiencies and act on them immediately due to the risk factors typically associated with LP gas composition.”
Measures taken by CAA and Government
The recently appointed nine-member committee by cabinet members will advise on the proper restructuring of the LP gas industry to overcome losses faced by both companies.
Accordingly, their task would be to study the process of procurement, transportation, and storage of LP gas requirements of the country by Litro and Laugfs.
On the other hand, to protect consumers, CAA issued an extraordinary gazette notification directing all manufacturers and traders of gas to ensure adequate quantities of the domestic cylinders weighing 12.5 kg are available for sale at all sales outlets islandwide.
Speaking on the matter, Gunawardena emphasised that it is extremely important for Sri Lanka to have proper regulation with regard to introducing new products to the market. He said that as things stand, the companies are allowed to release a product and then inform the CAA. “However, we have to draft a new regulation. I have already informed the CAA Chairman and other relevant officials regarding this. Hence, how fast this will come into action depends on the Ministry,” he said.