News

Litro and Laugfs discuss Govt.’s proposal

  • Both gas suppliers yet to reach agreement on joint biz strategy
  • Govt. proposes bulk imports to ensure lower import costs
  • No permission to increase LP gas prices: Alagiyawanna

By Maheesha Mudugamuwa

A joint business strategy has been proposed by the Government for liquefied petroleum (LP) gas importers, in a bid to prevent any losses incurred by them during the importation process and, thereby, to avoid any shortage in the local market, The Sunday Morning learnt.

It is also learnt that discussions are currently being held by the Ministry of Finance with the two major LP gas importers – Litro Gas Lanka Ltd. and Laugfs Gas PLC.

However, the two companies had not yet reached a final decision with regard to the joint development proposal suggested by the Government.

“The Government has suggested the LP gas importers to go for bulk importations, which would definitely lower the import costs, and also to jointly import LP gas to Sri Lanka,” Deputy Secretary to the Treasury R.M.P Rathnayake told The Sunday Morning.

He said a number of options are currently being discussed to find a solution for the importers to reduce their cost of imports without increasing the local gas prices. “We have suggested several options too. But no final decision has been taken as yet,” Rathnayake noted.

A shortage of LP gas has been reported in the local market, as Laugfs Gas, one of the largest suppliers of LP gas in Sri Lanka, has stopped all its imports.

At present, the company enjoys an over-30% market share in the domestic and commercial sector and 60% in the industrial bulk LP gas market. In the auto gas retailing sector, the company also holds a stake of 85% of market share.

It is learnt that the company had been compelled to stop imports due to reasons such as difficulties faced in opening Letters of Credit (LCs) and the severe shortage of foreign currency with the banks.

However, the private gas supplier has raised concerns from time to time with regard to the losses incurred by the company while importing LP gas to Sri Lanka.

It is learnt that the importers have been incurring a loss of around Rs. 500 per cylinder for the past six months. As a result, the main importers, Litro and Laugfs, have been incurring billions of rupees in losses during the past several years.

When contacted by The Sunday Morning, Laugfs Holdings Chairman W.K.H. Wegapitiya said he had not taken an exact decision to stop importing LP gas to Sri Lanka.

Explaining further, Wegapitiya said: “Being a company that has been in business for over 25 years, and a business that has been built from zero while competing with major local and multinational players in market, acquiring 30% of market share in a very competitive environment while facing challenges as well as global volatilities to build a strong brand, do you think any sensible person would wholeheartedly stop the business unless there was a very serious situation?”

When queried about the future of Laugfs gas consumers, he elaborated that a business that has 2.9 million cylinders in households around the country will try to do anything to avoid the situation.

“We have discussed this with everyone, but we still haven’t got a positive response. We can’t run like this. We have already incurred a massive loss. We have requested the Government to increase the prices, but they haven’t done that either,” he stressed.

Responding to the issues faced by Laugfs with regard to the opening of LCs in banks, Deputy Secretary to the Treasury Rathnayake denied any impact from the Government, saying it was an internal issue of the company. “We have nothing to do with the LC issues faced by them,” he added.

When queried whether the current economic situation had fuelled the situation, Rathnayake noted that it had no effect on Laugfs’ issue.

The two firms have been requesting price increases of between Rs. 600 and Rs. 700 per 12.5 kg cylinder, but the price control agency had only approved an increase of between Rs. 375 and Rs. 400.

However, President Gotabaya Rajapaksa and the Cabinet had decided not to increase the price.

In June, discussions were held by a Cabinet Subcommittee headed by Minister of Trade Bandula Gunewardana to jointly purchase, transport, and store LP gas by both companies using the Hambantota Gas Terminal. It was discussed that a committee will be appointed consisting of Laugfs officials, Litro officials, and energy experts to procure LPG for the country, where the progress will be reviewed in six months. Nevertheless, no final decision has been taken to jointly engage in the business as yet by the two major players.

In the meantime, speaking to The Sunday Morning, Litro Gas Lanka Chairman Theshara Jayasinghe said there was no shortage of LP gas in the market and that Litro was supplying enough cylinders to the market.

“The daily domestic gas cylinder requirement is around 95,000, and around 80,000 cylinders are supplied by Litro while the rest of around 15,000 is supplied by Laugfs. From seven to eight days ago, Laugfs has stopped supplying cylinders and we have supplied nearly 100,000 to the market on a daily basis,” Jayasinghe explained, adding that there was no shortage at present, but the current shortage was due to panic-buying.

“We have enough stocks, but people are buying domestic cylinders as they think there could be a shortage, and that has increased the demand in the local market,” Jayasinghe noted.

Jayasinghe also noted that Litro has already forwarded several proposals to Laugfs through the CAA, including the temporary management of their refills through the Litro distribution network for a specific period with legal and regulatory clearance.

As explained by the Litro Chairman, unless a legal disclaimer is obtained by Laugfs, along with CAA approval, for refilling, it would amount to an offence under the Intellectual Property Law and the CAA Act No. 9 of 2003 as amended. The same disclaimer should cover that the total requirement of domestic cylinder supply shall only be done through Laugfs Gas Lanka for the stipulated period.

Laugfs is to handle 100% of the bulk customer market, which is around 5,000 MT, and divert the Ceylon Petroleum Corporation (CPC) purchases currently used to service Laugfs bulk customers to service their own domestic customers and bulk supply of LP gas for cash to the Laugfs filling plant through Litro bowsers at a cost to support/sustain Laugfs’ business, Jayasinghe added.

In the meantime, as reported by The Sunday Morning last week, no official communication had been given by the leading private stakeholder, Laughs, to the market regulator, the Consumer Affairs Authority (CAA), notifying any intention of stopping the importation of LP gas.

CAA Chairman Maj. Gen. (Retd.) D.M.S. Dissanayaka said the authority was not aware of whether Laugfs was planning to stop importation, while questioning whether the company had even said so.

The CAA had issued an extraordinary gazette notification setting a district-based maximum retail price (MRP) for a domestic LP gas cylinder of 18 litres (9.6 kg) with effect from 25 July 2021.

The CAA also issued a gazette making it mandatory to display the weight of LP gas cylinders sold in the market in kilogrammes.

Moreover, the market regulatory body had ordered that “no manufacturer, distributor, dealer, or trader of LPG domestic cylinders shall sell, expose, offer, display for sale, or supply for sale any domestic LPG cylinder of 18 litres (9.6 kg) within the districts, above the maximum retail price”.

Meanwhile, State Minister of Co-operative Services, Marketing Development, and Consumer Protection Lasantha Alagiyawanna said the gas prices would not be increased.

“We accept that there is a situation in the market, but consumers should not stoop to panic-buying,” he added.