LPG shortage: Forex crisis puts out home fires

• Govt. should provide dollars for LCs; we are begging from banks: Laugfs Gas Chair
• No response from Treasury on investigation request on ‘mafia’ claims: Koswatte
• Supplier rejects allegation; requests Litro to retract allegations and set record straight
• Unloading of 3 LPG consignments delayed due to dollar shortage last week
• Industry insiders predict tough times ahead

By Asiri Fernando

The ongoing foreign currency crisis is causing delays in securing liquefied petroleum gas (LPG) supplies to Sri Lanka, as the local shortage continued for another week, impacting households islandwide.

This came in a backdrop where many households across the country were scrambling to find alternative fuels for cooking. Long queues for kerosene in the suburbs continued, as many rural folk switched back to wood-fired cooking.

Delays in making payments due to the dollar shortage were aggravating the ongoing LPG shortage in the domestic market, with industry insiders predicting more disruptions in the coming months.

The scarcity of US dollars in the country caused delays in payments and pushed back the unloading of three vessels that brought routine LPG consignments destined for Litro Gas Lanka Ltd. last week, The Sunday Morning learnt.

The supply of LPG for state-owned Litro Gas Lanka Ltd. continues to be hampered due to the dollar shortage, even though intervention by the President and the Central Bank of Sri Lanka (CBSL) in assisting to mitigate the problem during the last two weeks allowed the market leader to pay some of its debts to the suppliers, a senior Litro Gas Lanka official told The Sunday Morning on terms of anonymity.

“Finding dollars is a critical issue. We fear this may only get worse in the coming months. We have rupees but can’t make payments to the supplier due to the foreign currency shortage,” the Litro Gas Lanka official said.

He explained that the current shortage of Litro (blue) LPG cylinders in the market was due to Litro shutting down the refilling plant for three to four days due to a delay in supply.

“Normally, there are around 400,000 filled domestic cylinders in the market (at agents and distributors); we replenish around 75,000-80,000 cylinders per day. However, we were unable to refill empty cylinders for about three days. With word of a shortage and panic buying, much of the 400,000 filled cylinders have been sold. So, now we need to refill and issue around 100,000-120,000 cylinders a day to fill the gap. This is hard to do because of delays in getting consignments released. Last week, some feeder ships were anchored near the LPG unloading buoy waiting for payment. They were delayed for a few days,” he said.

According to him, delays in unloading vessels with LPG consignments throw supply timelines into disarray. “There are seven or eight ships that supply LPG, and they work in rotation, so if one or two are delayed, that complicates supply schedules,” the Litro official said.

Responding to a query from The Sunday Morning, Laugfs Holdings Chairman W.K.H. Wegapitiya echoed the sentiments of the Litro official, stating that the company was also struggling to get a letter of credit (LC) opened to secure a consignment of LPG but was unable to do so, as banking institutions could not source the US dollars needed for the transaction.

“This is an issue beyond our control. This is a matter for the Government to solve. The Government should issue dollars to the banks so that we can open LCs. We can only get LCs from banks. Every morning, we go to the banks awaiting their nod to learn they have enough dollars to make payments. If the Government can provide dollars to the banks to issue LCs for us tomorrow, I can get the LPG stock released and restart cylinder supply from the day after,” Wegapitiya said.

Litro Gas Lanka and Laugf Gas (Pvt.) Ltd. control around 80% and 20% of the LPG market share, respectively.

LPG ‘mafia’

However, Litro Gas Lanka Ltd. Chairman and Chief Executive Officer (CEO) Theshara Jayasinghe, addressing a press conference on 5 November, alleged that there was a “mafia” that controlled LPG supply to Sri Lanka, accusing the supplier (M/s Oman Trading International) of employing strongarm tactics to force the state-owned enterprise (SOE) to extend a two-year supply contract in order to facilitate the unloading of a consignment which had arrived at the port.

Addressing the press, Jayasinghe charged that a monopolistic situation that prevails in the market does not allow any other industry players (supplier) to enter the market, adding that there is exclusive possession or control of the trade.

Furthermore, the Litro Gas Lanka Chairman stated that over the past 10 years, it was only one particular party that drove the trading business of LPG in the country, arguing that due to this pressure of such “mafia”-driven trading, and regardless of the political party in power, whichever new group gets involved was adversely affected and threatened in a number of ways.

Jayasinghe stressed that the SOE was not in a position to release gas cylinders to the market from 28 October 2021 to 1 November 2021, adding that the general public was not aware about this and needed to be told.

He claimed that the Litro Gas plant situated in Kerawalapitiya was also completely closed during the period of 28 October-1 November due to ships carrying LPG that reached the Colombo Port threatening that they will not release LPG to Litro Lanka Ltd. in the event the supplier failed to extend the contract for another two years. 

He also stated that if the agreement was extended, the taxpayers would lose Rs. 10 billion, indicating that some persons with vested interest in the LPG sector may be getting kickbacks from such losses.

Litro alleged that the four-day shutdown of operations at their plant in Kerawalapitiya played a significant part in it not being able to sustain a steady flow of gas cylinders in the market.

Sri Lanka entered into a contract with Oman Trading International (OTI) to supply 740,000 metric tonnes (MT) (+/-10%) at the total insurance and freight (CIF) price of cost price (CP) + $ 105.40 per MT on 24 February 2020. This agreement is scheduled to end on 24 February next year. OTI is now known as OQ Trading Ltd., an Omani Government-owned energy company.

Several attempts by The Sunday Morning to reach Litro Gas Chairman and CEO Jayasinghe regarding his controversial allegations failed.

Jayasinghe’s controversial comments drew a response from his predecessor, former Litro Chair and CEO Anil Koswatte, who requested the Secretary of the Treasury to launch an investigation into the allegations.

Speaking to The Sunday Morning, Koswatte said the Treasury had not responded to his request as of last Friday (12). 

Koswatte stressed that Jayasinghe’s comments were unsubstantiated and irresponsible, alleging that it would tarnish the reputation of the SOE and Sri Lanka. “I expect that the Treasury will look into it after the Budget,” he said.

“These are serious allegations. During the 10-year period (with regard to which) he (Jayasinghe) made these claims, there were six finance ministers, three ministry secretaries, and three CEOs (of Litro). So, these allegations point the finger at everyone,” Koswatte pointed out, arguing that the agreement to give the supply contract to OTI came following due procedure, including cabinet and technical committee approval.

Koswatte rejected the allegations, arguing that one of the four suppliers that responded with offers to the tender by Litro appealing the decision points to due process being followed. “The appeal board also had a hearing when one bidder appealed. He also highlighted that OTI is owned by the Omani Government.”

Supplier responds

The “mafia” allegations made by the Litro Chairman also drew a strong response from the supplier, OQ Trading Ltd. (OQT), addressed to the Minister of Finance. OQ Trading Ltd. categorically denied the implications of wrongdoing.

“We categorically and strongly deny the above implication of wrongdoing on the part of OQT and the negative sentiment expressed by the Chairman. OQT has in no such instance asked LGLL (Litro) to sign an extended contract to maintain a continuous supply of LPG to Sri Lanka,” OQT CEO Wali Al Jamali stated in the letter, which was also copied to the Treasury Secretary.

According to OQT, the delay in discharging the LPG consignment from the vessel (Singaporean-flagged LPG tanker MV Epic Bird, IMO: 9698367) in Colombo on 22 October 2021 was due to continued breach of contract by Litro Gas Lanka Ltd.

OQT lists the breach of contract as “failure to provide the required financial security as stipulated under the contract; and failure to settle invoices on due date to the value of circa. $ 15 million”.

OQT had stated that notices of the breaches of contract were issued to Litro on 10 August 2021 and despite no response being received from the SOE, OQT continued uninterrupted supply of LPG to the country for a further 75 days.

“Overdue invoices subsequently increased in value and no progress was evidenced by LGLL in respect of the requirement to increase the value of financial security. Disappointingly, during the same period, LGLL issued a spot import tender for the purchase of LPG outside of OQT’s contract,” OQT stated.

The supplier, in their response, had also highlighted that the Treasury had requested a credit facility for allowing Litro Gas Lanka Ltd. to defer payments on new deliveries of LPG.

“We would also like to remind you, it was on the invitation of the Ministry of Finance that we arrived at your office on 6 October 2021 and upon your request, proposed a credit mechanism/facility allowing LGLL deferred payment on new deliveries of LPG to the country. This proposed facility is a favourable facility to both LGLL and OQT where OQT’s strong financial standing could have been utilised to mitigate the immediate USD shortage without any interruptions, provided the breaches of contract are remedied and/or the contract is amended to enable deferred payment by LGLL under approved revised terms,” OQT stated.