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| Sunday, 2 November 2003 |
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Business |  |
| News Business Features Editorial
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Most players against cross-filling : Gas war hots up by Hiran H. Senewiratne The Government is encouraging more companies to enter the retail LPG business as competition will result in gas prices coming down. The main LPG suppliers in the country, while welcoming competition, said that all players should have a level playing field. The liberalisation of the domestic gas business will result in a reduction of prices with the influence of market forces. The Government, with the intention of reducing the cost of living, is now in the process of promoting Liquid Petroleum Gas (LPG) supplying companies to enter the local business. "We expect more and more companies to enter the LPG business. The higher the competition, the more benefits consumers will have," said Minister of Commerce and Consumer Affairs Ravi Karunanayake. "We expect LPG prices to come down if there is intense competition among companies," said Minister Karunanayake. He said healthy competition within the industry will enable the players to offer better services to the customer, provided the companies conform to all safety standards. Karunanayake said the Ministry is in the process of patronising the common cylinder or cross-filling concept to the business to ease out entry barriers. SGLL had appealed to the Supreme Court (SC) against the Appeal Court ruling allowing Mundo Gas to refill empty cylinders of other operators. The Government and LPG suppliers are currently awaiting the SC's dictum. The Sri Lankan domestic market has huge potential. Out of the total population of the country, only 20-25 per cent use gas for domestic purposes, which is an open market. Director General, Consumer Affairs Authority (CAA), Kithsiri Gunawardena said that they welcome healthy competition in a bid to reduce gas prices so that these benefits can be passed to the public. Gunawardena said with the appreciation of the Sri Lankan rupee against the US dollar coupled with decline trends in world market prices, local gas prices will definitely come down which will benefit the consumer. He said that no supplier can revise their prices without the approval of the CAA. According to the main LPG suppliers in the country i.e. Shell, Laugfs and Mundo, the world market price is mainly determined by the Saudi Aramco Contract Price or CP price. Other main components of the value chain are freight and insurance, taxes and levies by both ends, internal costs and recovery and dealer and distribution margin. Shell Gas Lanka Ltd (SGLL), Country Chairman and Managing Director, Roberto M. Moran said competition creates a consumer-driven market, which is beneficial to the consumer. "We are currently dominating the local market with an 80 per cent share. Therefore, new players entering the market will affect our market share," said Moran. Corporate Affairs Director, SGLL, Dr Mahesha Ranasoma said: "We welcome new companies to the business as a positive move as increased competition will benefit the end user. "We believe in fair competition and look forward to a level playing field with new competition coming into the LPG market," he added. Cross-filling "Consumers will benefit immensely from fair competition, enabling us to win their confidence by continuously enhancing our products and services," he said. SGLL is against the legalising of cross-filling due to the violation of brand and trademark protection rights, Dr Ranasoma added. Cross-filling will not guarantee the safety standards, he said. "LP gas is a hazardous product; if you do not respect safety standards, a lot will be compromised. It could also cost human life," Dr Ranasoma added. Laugfs Gas Ltd Chairman W.K.H. Wegapitiya said the new companies that are expected to enter the market will not be able to sell at reduced prices, since the initial investment is very heavy. Every company cannot bear this with the present scenario. Shell and Laugfs have presently priced their gas cylinders at Rs 595. He said that companies have little control over LPG prices specially due to external factors. He was of the view that increased competition will only improve service levels. LPG prices are also heavily dependent on international events. He said that during the US and Iraq war, LPG prices increased as never before. On the cross-filling issue, Wegapitiya said that nowhere in the world does such cross-filling take place. It is only in Sri Lanka that such a thing is allowed to happen. According to Mundo Gas Chairman, Ariyaseela Wickramanayake, by removing entry barriers, customers will get a fair deal. He said that monopoly situations always hinder the growth of industries. He said that by promoting the common cylinder concept, further opportunities will be created for new players to enter the domestic LPG business. Wickramanayake claimed that his company has more than 120,000 cylinders while another 200,000 cylinders have been ordered to ensure a continuous supply of gas to the market. The Malaysian company Subur Lincah Sdn Bhd signed an agreement recently to the tune of US$ 100 million to set up SriMal Gas Lanka, a Board of Investment-approved venture. The Malaysian company's entry to the Sri Lankan market is based on the large local market for LP gas cylinders and the opportunities for expansion into the Indian and Bangladesh markets, facilitated by the Indo-Lanka Free Trade Agreement, Country Manager, Benjamin Samuel said. He said incentives and investor assistance provided by the BOI were also significant factors in their decision to enter the Sri Lankan market. Samuel stated that the project will be implemented in three stages; the company will first import 32,000-40,000 filled cylinders from Malaysia. He said the company is going to set up a local filling station including a cylinder factory in Hambantota to distribute gas to the local market. Regional hub The company intends to undertake the construction of main gas storage facilities and stations, making Sri Lanka a regional hub for LP gas. The final stage of the project will be the setting up of a factory to manufacture LP gas cylinders, he added. Upon completion of the project, the company will have a gas storage facility, a filling plant and a cylinder manufacturing plant. A SriMal LPG cylinder will be priced at Rs 500 and will be available in markets before the end of this year. This project is expected to involve extensive transfer of technology into Sri Lanka and the intensive training of employees of the company. It was further estimated by company officials that the initial phase of the project would provide 500 jobs. This will result in higher technological standards and a more skilled workforce in the LP bottled gas industry in Sri Lanka, Samuel added. According to Samuel, they are not in favour with the concept of cross-filling. "We will not allow other parties to use our cylinders at any cost," he said. Another company, Malaysia Global Gas Alliance (GGA), and Expo Lanka Commodities signed an agreement with the BOI recently to the tune of US$ 16 million for the distribution of LPG in the country. The new joint venture company, Expo Gas Lanka Ltd, will provide high quality imported gas from Petronas in Malaysia. The company is expected to supply gas in pure steel cylinders and has already commenced the construction of its bottling plant at Sapugaskanda, said Director, K.M. Munuvver. The investment, which is split into several phases, will involve the acquisition of cylinders, the distribution of gas via district distributors, the construction of a transportation depot with transport trailers, trucks and tankers as well as marine discharge and bulk storage facilities. Munuvver said the company expects to import one million cylinders directly from Malaysia within the first five years of the project and that their initial production capacity would be in the range of 60,000 refills per month. "This is our first venture as an operator outside Malaysia. We decided on Sri Lanka after having conducted research within the Asian region," he added. "We are confident about the Sri Lankan Government's ability to stimulate the economy and maintain peace within the country. It is possible for us to set up operations within the country speedily and with minimum red tape," Munuvver added. This investment, which is a direct result of the recent investment promotion mission to Malaysia, will be a stepping stone for further direct investment into the country as the company plans to set up additional bottling plants throughout the region. "This strategy is in line with the BOI's plans to filter investment within the country at regional levels and encourage new opportunities for employment in these areas. The first bottling plant at Sapugaskanda will initially generate about 35 jobs in the area," Chairman and Director General BOI, Arjunna Mahendran said. Competitive advantage Munuvver, meanwhile, emphasised that the main competitive advantage Expo Gas Lanka had over its local competitors was that they would be able to offer a very competitive price due to their business strategy of setting up regional bottling and distribution outlets. "We are very committed to ensuring stringent quality and safety standards. We have received the ISO 9000 accreditation and the American DOT 4B 240 accreditation for our cylinders, which are made of pure Japanese steel and not scrap metal". He said the Expo Gas two-toned cylinder has been subject to various durability tests such as the burstage, water immersion and hydro tests to test pressure levels and any possible leakages. "This strict quality and safety process ensures the end user of a sturdier and better quality cylinder. The gas that the company provides is also of greater density with more BTU content, which will enable longer usage for the consumer," he said. Munuvver said that due to the washing facility system which is inbuilt into the bottling plant, each cylinder would be washed and cleaned prior to refilling, which would be highly appreciated by the end user. Munuvver also said that the proposed cross-filling concept will adversely affect the industry, although it will benefit the consumer in the short run, due to the safety standards. |
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