LPG crisis: New supplier ignites controversy, no shipment yet
- Cabinet-approved change in supplier due to urgent need and supply capacity
- Change may cost consumers approximately Rs. 75 more per 12.5 kg cylinder
- Litro claims Siamgas (Thailand) unable to provide volume
- 100,000 MT of LPG sufficient for 4 months: Litro
- No decision to increase price: LAUGFS
By Maheesha Mudugamuwa
Relief for consumers of domestic cooking gas remains out of reach as Litro Gas Lanka Ltd. last week said the next shipments of Liquefied Petroleum Gas (LPG) were only expected to arrive within the first two weeks of July.
While consumers struggle to find alternative means to light their fires while awaiting gas supply, controversy has surrounded the new shipments ordered from a former supplier, allegedly at a higher rate than the last supplier, The Sunday Morning learns.
Millions of LPG consumers of both the State-owned Litro Gas Lanka Ltd. and privately-owned LAUGFS Gas PLC, especially those who live in urban areas, continue to stand in long queues, while uncertainty over supply has been mounting for many weeks.
As a result of the gas shortage, many have already shifted to traditional wood stoves, but the urban population, having restrictions in using traditional methods of cooking, continue to desperately wait for the LPG supply. Some people have shifted to kerosene stoves, but the supply of kerosene has also now been limited.
The arrival of LPG consignments in the country has been sporadic and insufficient to meet the country’s demand.
At the beginning of this month, a drastic change occurred in the management of Litro Gas Lanka Ltd., following a change in its leadership, and in parallel a new order for gas shipment was also placed by replacing Thailand’s Siamgas and Petrochemicals PCL, which was the supplier that had been earlier approved by the Cabinet.
Prior to changing the supplier, Litro was to award the tender to Siamgas for four months following the completion of a procurement process. The previous tender received Cabinet approval on 3 May.
Soon after the new chairman was appointed earlier this month, Litro decided to bring domestic gas into the country for four months from the Oman company OQ Trading Ltd. Following an announcement by the Cabinet subcommittee, civil activists and Opposition parties questioned the new deal. Around two weeks ago, Litro said the stocks from Oman would arrive in the country within 14 days but there are no signs of the supplies yet.
Meanwhile, a senior official attached to Litro who wished to remain anonymous told The Sunday Morning that the shipment might arrive within the next two weeks. The Litro official declined to divulge any further information, claiming that the process was currently being handled by the Ministry of Finance.
In such a backdrop, it was reported last week that the new order is mired in controversy due to the price difference of the Omani and Siam suppliers. As it was revealed, Siamgas had quoted the price of the CIF value of $ 96 per MT of LPG while the price of OQ Trading was much higher at $ 129 per MT. Therefore, the Government has to pay $ 33 more for the new arrangement.
The decision to award the contract for the supply of gas to the lowest bidder Siamgas was taken without extending the agreement with Oman Trading International Ltd. which was approved as the supplier by the Cabinet two years ago, and awarded the contract of purchasing 740,000 litres of LPG for Litro Gas Lanka Ltd. for a period of two years from 1 March 2020. The agreement expired on 1 March 2022.
Concerns have been raised over the awarding of the contract to the same company at a higher rate. However, according to Litro Gas sources, the contract had been awarded considering the capacity of the Omani supplier to deliver the required stocks to the country, which is currently facing severe shortages.
Nevertheless, the move of buying LPG from OQ Trading may see the price of a LPG cylinder go up to Rs. 7,000 compared to the Siamgas price of Rs. 5,000, sources warned.
Meanwhile, Treasury Deputy Secretary R.M.P. Rathnayake told The Sunday Morning that the Ministry was not involved with Litro’s procurement process and it was only providing financial assistance, like with any other sector. He went on to say the necessary funds for the importation of LPG had already been allocated by the Finance Ministry. “We were not involved with any of the procurement processes that had taken place in Litro,” he said.
Accordingly, a total of $ 160 million had been allocated under the Indian Line of Credit (LOC) and another $ 90 million was expected from the World Bank for the gas purchase.
Meanwhile, in its explanation to the said allegations, Litro Gas Lanka Ltd. stated that it called for international tenders for the supply of LPG during the period 2022-2023 under ICB on 9 January 2022. The tenders closed on 16 March 2022. Litro Gas Lanka confirms that the following tenders were received: a) Siamgas and Petrochemicals PCL – freight cost per MT at the rate of $ 96; b) OQ Trading Ltd. – freight cost per MT at the rate of $ 129; and c) BB Energy (Asia) Pte. Ltd. – freight cost per MT at the rate of $ 148.
Litro noted that the Standing Cabinet Appointed Procurement Committee (SCAPC) had decided to award the tender to Siamgas. However, the Government had not been in a position to fulfil the condition to Siamgas by providing the $ 30 million Stand-By Letter of Credit (SBLC ) to Litro Gas Lanka Ltd.
In order to create time to solve this issue and mitigate the rising LPG crisis, it had been decided to purchase LPG via spot cargo as a short-term solution. Hence, quotations had been called from Siamgas and the second lowest bidder OQ Trading for spot cargo, it stated.
Through a letter dated 30 May 2022, Siamgas declared that under the current economic situation, it was able to supply only 6,600 MT of LPG and that too at the rate of $ 112.00 per MT. Litro Gas Lanka stated this would only be sufficient to meet the demand for five days and this quantity was inadequate to meet the growing demand of the general public who were already facing an acute LPG crisis for their day-to-day requirements.
OQ Trading, which was the second lowest bidder in the aforesaid tender, had declared that it was in a position to meet the demand of LPG by giving an uninterrupted supply of 100,000 MT of LPG at the rate of $ 129 per MT to Sri Lanka, which is sufficient for approximately four months.
It is learned that, in view of the acute LPG crisis faced by the public and with the objective of mitigating and normalising the current situation, the Cabinet had informed Litro Gas Lanka Ltd. to sign an agreement with OQ Trading on a temporary basis. Further, until the financial status of the Government improves, the company had been advised to cancel the contract with Siamgas and call for a fresh tender.
According to Litro Gas Lanka, the $ 17 difference between the two bidders OQ Trading and Siamgas translates to approximately Rs. 77.50 per 12.5 kg cylinder, which is not a significant burden in proportion to the inconvenience faced by the public due to lack of LPG in the market.
When contacted, Litro Gas Lanka Director (Sales and Marketing/Corporate Affairs) Janaka Pathirathna said Litro would resume operations as usual once the expected stocks arrived in the country.
He said that initially priority would be given to Colombo and its suburbs and soon the distribution would be expanded around the country as it used to be before, responding to a query by The Sunday Morning on whether the supply would be limited to urban areas. He went on to say that at present the supply had been limited to commercial purposes, which was also now very limited.
Pathirathna confirmed that once the first shipment carrying 100,000 MT arrived in the country, the stocks would be sufficient for around four months.
Meanwhile, LAUGFS Holdings Chairman W.K.H. Wegapitiya said his company was issuing stocks daily as usual and there was no plan to increase the prices. He denied that there was a shortfall in supply despite people still waiting in long queues carrying LAUGFS cylinders amongst the long queues for Litro.