Gas prices: CAA tasked with the balancing act

By Sarath Wijesinghe

Gas, milk food, wheat flour and cement are considered as essential items under Sec 18 of the CAA Act. According to the Section when the Minister is of opinion that any other goods or any services is essential to the lives of the community, he in consultation with the authority may prescribe such goods or services as essential to the life of the community. Thereafter manufacturer or trader shall increase the retail or wholesale prices except with prior written approval of the Authority.

Section 18 reads as follows:-

1. Where the Minister is of opinion that any goods or any service is essential to the life of the community or, part thereof, the Minister in consultation with the Authority may by Order published in the Gazette prescribe such goods or such service as specified goods or specified service as the case may be.

2. No manufacturer or trader shall increase the retail or wholesale price of any goods or any service specified under subsection (I), except with the prior written approval of the Authority.

3. A manufacturer or trader who seeks to obtain the approval of the Authority under subsection (2), shall make an application in that behalf to the Authority, and the Authority shall, after holding such inquiry as it may consider appropriate:- a.Approve such increase where it is satisfied that the increase is reasonable; or b.Approve any other increase as the Authority may consider reasonable, c. And inform the manufacturer or trader of its decision within thirty days of the receipt of such application.

4. Where the Authority fails to give a decision within thirty days of the receipt of an application as required under subsection (3), the manufacturer or trader who made the application shall be entitled to, notwithstanding the provisions of subsection (1), increase the price:

5. Provided however, where the delay in giving its decision within the stipulated period was due to the failure of the manufacturer or trader to give any assistance required by the Authority in carrying out its inquiry into the application, the Authority shall have the power to make an interim order preventing the said manufacturer or trader from increasing the price, until the Authority makes its decision on the application.

Today the price of gas has become one of the main burning issues for consumers. The consumers and the media agitate that the price of gas is high. Every drop of gas is imported to Sri Lanka, from other parts of the world, except for a byproduct generated by the Ceylon Petroleum Corporation (CPC). The import of gas and the process is a complicated and cumbersome procedure. It has to be imported in liquid form and carefully stored and pumped into terminals maintained with high security standards. Presently there are two main players in the import and distribution of gas. One is Shell Gas out of which Sri Lankan government has a share of 49%. Government of Sri Lanka (GOSL) during the period of Mrs. Chandrika Kumaratunga privatised Shell Gas Company by selling 51% and giving all the facilities and infrastructure to a multi national company. Subsequently Laugfs Gas entered into the business and currently they hold approximately 20% share of the business in Sri Lanka. Laugfs Gas is a private local company which purchases byproducts of Ceylon Petroleum Corporation, in addition to imports.

Under Sec 18 both players are expected to make applications to seek adjustment of prices of prescribed consumer items. The Authority is bound to consider the applications impartially, having gone through all the circumstances including cost, freight and the other information submitted and the decision should be transmitted to the applicant within 30 days. CAA will be able to adjust the prices only when there is an application for an applicant company. The LPG was made a prescribed consumer item on 20.08.2003 and to date it is continued to be a prescribed consumer item though other items such as cement were de-listed on and off.

The CAA is one of the main regulatory bodies which regulate trade, under Part II of the Act which has been given semi judicial regulatory powers to regulate trade and also act under Sec 18 exercising powers to adjust prices. The applicant companies could challenge decisions of the Authority either in the Court of Appeal or in the Supreme Court. In the CA the decision is challenged by way of writ on the ground and the authority has acted ultra virus or not based on natural justice or any other factors or irregularities. Main issues are price increases. Litigations against CAA are on the rise mainly on price adjustments and many technical matters on various grounds. Therefore we are bound to be extremely careful in dealing with the media in making statements. At the same time the citizen has a right to know the conduct, behaviour and the decisions of the CAA whose mandate under Sec 7 is to protect consumers against unfair trade practices and guarantee that consumers interest shall be given due consideration.

At the same time the preamble of the Act states that the policy of the government of Sri Lanka it is the policy of the Government of Sri Lanka to provide for the better protection of consumers through the regulation of trade and the prices of goods and services and to protect traders and manufacturers against unfair trade practices and restrictive trade practices. Therefore though our primary duty is to protect the consumer who is defined as "any actual or potential user of any goods or services made available for a consideration by any trader or manufacturer" we have to protect the trader, manufacturer and the industrialist too, while promoting competitive pricing wherever possible and ensure that the competition among traders and manufacturers of goods and services.

At the same time the Authority is bound to be guided by principles of Mahinda Chintana which states that local industrialists, traders and manufacturers should be protected while maintaining the free economy and the world economic order. This indicates how difficult it is for the CA to perform their functions, exercising a balancing exercise of looking after interests of many parties and factors, which is a difficult task.

Gas is an environmental friendly source of energy. Though it is imported using our revenue, the country cannot afford to use firewood due to environmental and other factors. We have to be conscious about the environment and also for the convenience of the consumer in the fast developing world. Gas has become an essential item to the household, industries and services such as health, security forces etc. Therefore the country cannot afford to have a shortage of this common source of energy even for a short period. Even though the Government is willing to assist and help new players of gas, due to large scale of investment and complicated procedure but new players find it difficult to start. It is true that there is a monopoly in this consumer item, which is a matter for those responsible and the business community to look into. The fact remains, as to how CAA has taken steps to monitor and control the prices of gas for a long period of time.

But CAA as an impartial regulator is bound to consider the circumstances, realities and facts of the case and action should be taken appropriately. It is a matter to be mentioned that it is time for the consumers look for alternative energies such as solar, biogas, wind power and other non traditional sources. We understand that measures are being taken by government on its own and also encouraging private entrepreneurs in this sphere. On the consumers angle it is time for them try to use this source carefully by not wasting it, e.g. steps must be taken to reduce the consumption by using pressure cookers and avoid leakage waste etc.

The government has taken initiatives to help innovators to popularise charcoal and by - products of paddy, hay etc. It is time for ITI and our scientists and institutions, to help the consumers and the nation on this area on energy and renewable energy such as energy from waste.

There are schools of thoughts in Sri Lanka that the gas price is comparatively cheap, compared to other countries. When you consider the consumption for a day by dividing the price of gas for a month, assuming that a household can manage with one cylinder for a month the expenditure for gas is very much less than the cost of fire wood, electricity or any other source of energy.

On the other hand if the world prices are going up as in the case of other sources of energy the Authority as a regulator is bound to consider the facts the factual situation and all related circumstances. The Authority has experienced departments and staff to compute prices, and advise and assist the Authority on pricing, inquiries, competition and many other areas.

"Aramco" is the benchmark price of gas such as OPEC for petroleum products. This benchmark is accepted by the entire world community as the world accepted guideline. Therefore any regulatory body in the world is bound to recognise this benchmark as a guideline in computation of the prices of gas. Aramco prices change every first day of the month.

The gas that is being imported, and purchased as a byproduct in Sri Lanka are being used for household and industrialists. The total demand of gas in Sri Lanka is roughly about 150,000 M/T per annum where the cost varies according to Aramco prices. From 2002 it was around 70,000 M/T and now it has doubled to 150,000 M/T and there is a possibility, in future, the demand to go upwards considering the population, social factors, and development. Electricity is definitely is not an alternative for gas. Firewood will lead to destruction of forests and not at all environmental friendly and also not compatible with the fast development and modern technology. Industries, security forces, hospitals and many small and large business establishments depend on gas.

This summary of facts and events indicate how important gas is to us, and how difficult it is for us to exercise the balancing procedure and the decision-making considering all circumstances.

The CAA is supervised and scrutinized by the public, the Executive, the Judiciary and the business community.

Therefore in the course of our duties we are bound to receive commendations as well as criticisms. We have always taken steps to keep the consumer informed of the realities and the facts as it is their right to know.

We always take steps to be transparent, consumer and business friendly. We publish three full pages per week in daily newspapers.

Thinakaran on Monday, Daily News on Thursday and Dinamina on Friday we carry full pages in order to liaise, communicate and exchange views with the consumer, industrialists, traders and manufacturers in addition to other ways and means of communication via net, text, phone and personal calls at No 27, Vauxhall Street.

Below-mentioned are four main items which come under Sec 18 as essential items in addition to the following other items.

1. White Sugar, 2. Dried Chillies, 3. Big Onions, 4. Red Onions, 5. Dhal, 6. Dried Sprats, 7. Gram, 8. Green Mung, 9. Canned Fish, 10. Chicken meat.

It is also noteworthy to mention that the government has taken steps to waive off all duties and levies pertaining to gas in the interest of consumers at large.

We are unable to provide you further information as we are prevented from disclosing further information under the Act No 9 of 2003.As quite a number of cases are pending, we are unable to discuss matters in detail as it may lead to legal complications.

This information is for those who continue making inquiries from us and also by respecting the "right" of "right to know" of the citizen. We will discuss the other prescribed items next week.

The writer is Chairman, Consumer Affairs Authority, ([email protected])