CPC should enter gas market to break monopoly, say unions

by Gamini Warushamana

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The Ceylon Petroleum Corporation (CPC) should re-enter the gas market to break the Shell monopoly, CPC trade unions said. The decision of the Minister and the CPC Chairman is commendable but the manner in which they are setting about it is not wise and practical, the spokesman for the CPC Common Service Union D.J.Rajakaruna told the Sunday Observer.

According to the union Shell still dominates the gas market in the country and Laugfs has not increased its market share and is only selling the gas it buys from the CPC. Laugfs has only around 10% market share. Today it imports gas only when the refinery closes for maintenance and Laugfs is not competing in the market and earns huge profits by selling the gas produced by the CPC.

The CPC refinery in Sapugaskanda produces 50-60 tonnes of LP gas per day and it is only 10-15% of the demand in the market. The daily gas consumption of the country is around 500-600 tonnes. In the agreement with Shell to privatise the CPC gas business, there was not even a clause to sell CPC gas production to Shell.

Therefore, the CPC had to burn its gas products over two to three months. The CPC later entered into an agreement with Laugfs to sell gas and the agreement ended one-and-half-years ago. Thereafter, the agreement was extended every three months. After the CPC decided to call for tenders to sell the gas produced at its refinery, Laugfs went to court and got an injunction.

Today Laugfs buys CPC gas at the world market price but the company earns a huge profit because it does not incur freight or other transport costs. In January the average international gas price was $ 873.50 and it dropped to $803.50 in February. Today Laugfs earns around Rs.628 profit on a cylinder and CPC sells gas for 4,500-5,000 cylinders per day.

Rajakaruna said that since Laugfs does not sell gas at the lower price, CPC should enter the market to break the cartel and pass on the benefits to the consumer. International gas prices dropped in February though Shell and Laugfs increased the local market prices, he said.

Rajakaruna said that the CPC is unable to start the gas business by June as there is an injunction against the CPC and the case will be called in June. We can't predict the court decision. On the other hand the CPC does not have infrastructure to start the gas business. We don't have a plant or cylinders to sell gas, he said.

The Union said that the government should break the gas monopoly by permitting consumers to purchase gas for their cylinders from any company. Consumers have paid for the cylinder and therefore they should have the choice of buying any amount of gas from any company. This will improve competition in the market and with CPC's presence in the market consumers will benefit immensely. The security concerns raised by the gas selling companies are unfounded.

On the other hand, the CPC cannot sell gas at a lower price since it caters to only 10% of the country's demand. Since the CPC is planning to expand the refinery and introduce new technology, gas production can be increased. This will help the CPC to capture 30-40% of the market and then it can influence the market significantly, Rajakaruna said.