Corporate sector, consumers poised for better deal in Public Private partnership:

Shelling out for Shell

by Surekha GALAGODA

The Government is in discussion with Shell Gas Lanka Ltd (SGLL) to purchase the 51 percent shares held by them in keeping with the Mahinda Chinthana policy of the Government to regain national assets sold to private companies in previous regimes.

The Government has said that it will buy the 51 percent for $ 63 mln. Once it is purchased from Shell the Government intends to divest 40 percent to the public to create a healthy Public Private partnership (PPP). Business leaders, housewives and all other segments of the society are happy about the Government's decision to purchase the shares of SGLL as they are of the view that PP is the way forward and also that the price of LPG will come down in keeping with the world market prices.

An industry leader said that Sri Lanka is one of the fastest growing markets for domestic, commercial and industrial Liquid Petroleum Gas (LPG) in South Asia. The growth rate of the industry reached double figures a decade ago and this figure is continuously increasing which shows a promising future for the players in the industry. Imported quantity of LPG in the year 1993 was 38,000 MT and it has grown to 180,000 MT in the year 2007. This excludes the daily average production of 60 MT by the Ceylon Petroleum Corporation (CPC) refinery at Sapugaskanda. After the liberalisation of the gas industry in year 2001, LAUGFS Gas (LG) entered the market as the second player in the downstream LPG operations in the market. As a consequence to LG entering the market, the consumers in the country experienced a significant improvement in safety, service standards and customer care.

He said that Sri Lanka Insurance Corporation too which was sold to Harry Jayawardena was purchased and today it is functioning well as a government entity dispelling the myth that government entities are loss making ventures. Therefore this is a most welcome move to keep checks and balances. SGLL said operations at the firm would remain unchanged until the sale of its stake is finalised, shortly after the Government said it would buy the oil giant for $ 63 million.

"We are hopeful a sale purchase agreement will be signed soon," said Shell Gas Lanka's country chairman Walter Sanchez in a statement to the media.

"However at this point, the agreement has yet to be signed and our discussions with the Government remain confidential," he said. The firm said the sale is in line with a group "strategy to refocus its global downstream footprint into fewer, larger markets."

"Until a deal is concluded, Shell Gas Lanka's operations will continue as usual. We wish to state that running a safe, cost-effective and reliable operation remains our top priority." Former president Federation of Chambers of Commerce and Industry of Sri Lanka (FCCISL) Nawaz Rajabdeen said that it is a good move as this will create a healthy competition between the Government and the private sector where the final beneficiary will be the consumer.

He said that most of the national assets were privatized for a song and the individual companies were making huge profits after investing a meagre amount. These are essential sectors therefore government should control the prices by establishing a monitoring unit to check the current price in the world market and fix prices accordingly.

He said in the event government is going to operate it there will be problems again but as the Government has decided to divest 49 percent to the public it will be a PPP and the way forward for a country like ours.

A National Chamber official who did not want to be named said that it is a good move as there will be healthy competition between the public and private sector. He said PPPs are the way forward and therefore I see it as a good move. He said that the prices will not come down immediately but in time to come we will be able to experience price reductions as well.

Chairman and Managing Director Dankotuwa Porcelain Lanka Ltd Sunil Wijesinghe said that Government should buy the shares and manage the entity efficiently as there are many people who can manage such an entity.

He said that at present both players buy LPG based on the Saudi Aramco prices and sell it based on a price formula, which changes once a month They also add up their profit margins. Therefore after the acquisition Government should ensure that the price doesn't increase.

He said that industrial sector should be able to purchase LPG at a more reasonable price while we accept the fact that gas prices should adjust according to the world market prices. He said that industries purchase a large amount of gas and the price in Sri Lanka is more expensive than the prices in Europe.

This is due to the high cost of the unit prices as the companies can't bring huge tankers due to the demand being less. When small tankers bring gas the cost is high.

In addition the domestic consumer should pay the real price for the LPG they consume. He said recently when the companies requested for a price increase the Government didn't permit the LPG companies to increase prices for the domestic sector and in any situation if price increases cannot be affected in one sector the companies will increase the prices in the industrial sector to mitigate the losses.

This is not a healthy situation for industrial consumers who have to compete globally. If the government follows this policy it will be disastrous for the companies engaged in the export sector.

In addition once the Government takes over they will have to ensure that there is a continuous supply of LPG. He said that the ceramic industry is not requesting for a subsidy but there should be a level playing field for the domestic as well as industrial sectors while continuous supply is also a must.Executive Consultant Noritake Lanka Porcelain Nimal Perera said that SGLL should have moved out from Sri Lanka a long time ago and I am very happy that SGLL is leaving the Sri Lankan shores.

We were the pioneers with them but the way they treated us made us move to Laugfs Gas where we get an excellent service. Laugfs Gas always gives an excellent service to the Ceramic industry. Therefore the Government's decision is most welcome as we are embarking on a path of accelerated growth.

A housewife from Kandy Mala Rajakaruna said that it is the most welcoming news she heard after the war victory. We the housewives have to be extra careful when using LPG as we can't afford to waste even little money due to its high price and most often than not have to use firewood to save more, she said.

This is a hassle for women of today who have to fight with time to finish their daily chores.

As I am doing a small business at home, time is very precious but on most days I break rest as I can't do all the cooking on the gas stove as it is very expensive.

She said that President Rajapaksa as usual has kept his promise and we are very fortunate to have a president like him as he always considers the grievances of the small man.

Prema Fernando a working mother said that this is a relief for people like us as we can't use any other mode of fuel living in the flats.

But everyday when I go to the kitchen I am worried whether I will be able to manage with the Gas in the cylinder or not. If I don't I have to purchase another cylinder. Our ultimate wish is that prices will become affordable so that we too can enjoy a bit of extras from the money we save.

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* Fact box 1994. In 1994 the Government sold 51% shares of their LPG business, which was then called Colombo Gas Company, to Shell Gas Lanka Ltd. SGLL owns 51% while the balance 49% was held by the Government. The agreement granted exclusive rights to Shell from 1995-2000. The agreement enabled Shell to develop the LPG market while the Government required Shell to make further investment to build a LPG import and storage terminal. Shell has invested over $135 mln.

* The funds were used for purchasing the 51 percent owned by Colombo Gas, building of an 8000 Mt LPG import and storage terminal, and upgrading the tanker fleet.

* December 2000-Exclusive rights granted to Shell ended opening the market for competition.

* May 2003- CAA issues a directive permitting cross filling of LPG cylinders.

* This directive enabled the third player Mundo Gas to re-fill LPG cylinders belonging to competitors without having its own cylinders.

* August 2003 - CAA listed LPG as a specified good thereby subjecting LPG companies to price Controls.

* In the subsequent years although there were many instances that the Government spoke of another competitor nothing materialized. Today the two players are SGLL and Laugfs Gas Lanka.

* 25% of 5 million houses in Sri Lanka use LPG for their cooking purposes & out of which 70% is in the Western Province.

Total annual LPG consumption in Sri Lanka is in the region of 180,000 MT.

* Product Portfolio

37.5kg Cylinder ,12.5kg Cylinder, 5kg Cylinder, 2kg Cylinder.

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