Financial Times

Bunker war in Colombo port
JKH unit accused of monopolistic practice
Lanka Marine Services, a subsidiary of John Keells Holdings, has got embroiled in a court battle with rival bunker supplier, East-West Bunker Services, owned by Nahil Wijesuriya, and has been accused of anti-competitive practices and of trying to retain a monopoly over marine fuel supplies in Colombo port.

The dispute centres on a clause in the final privatisation agreement LMS signed with the government which has been interpreted as effectively preventing other bunker suppliers in Colombo port from using their own infrastructure to store and supply marine fuels to ships and compels them to use the common user facilities owned and operated by LMS.

By a strange coincidence, the two rivals of LMS, East-West Bunker Services and Lanka Maritime Services, owned by Sri Lanka Shipping, both ran out of marine fuel stocks the week before last.

This led to a rebound in Colombo port bunker prices, which had fallen sharply with the ending of LMS' monopoly and the entry of East-West and Lanka Maritime Services following the liberalisation of the bunker business. LMS had an effective monopoly for about one year before other players came in to the market.

Wijesuriya's company has protested to the government against what it says is the alteration of the original draft agreement when bids were called to privatise LMS and the insertion of a clause into the final agreement, after JKH bought LMS for Rs 1.2 billion, that it says prevents other players from supplying bunkers on their own.

Clause 8.1 of the agreement says that the government, Sri Lanka Ports Authority and Ceylon Petroleum Corporation "shall ensure that all bunkers/ marine fuels handled and transported within the port of Colombo would be handled and transported using the common user facilities." The common user facilities refer to the Dolphin berth in the port, the South Jetty and inter-connecting pipelines, all of which are owned by LMS.

This clause was not in the draft agreement given to bidders when the Public Enterprises Reform Commission issued the request for proposals. PERC director general Manjula de Silva declined comment on the dispute describing it as a "post-privatisation issue" that was being looked into with various views being expressed by different parties.

Sanjeeva Fernando, director and general manager of LMS, contacted by The Sunday Times FT on Friday declined immediate comment and asked the newspaper to contact him later in the day. However, the newspaper was unable to get through to Fernando subsequently despite repeated telephone calls and messages.

East-West Bunker Services, which has chartered a 37,000 DWT tanker for use as a floating storage vessel has got an interim injunction in the Colombo District Court preventing LMS from interfering in its bunker business. LMS has filed objections denying the charges made by East-West. Lanka Maritime Services director M. Reza said the bunker business had started picking up after liberalization and the introduction of competitive pricing and that any return to a monopoly situation would kill the market.

"In October-November the number of ships calling for bunkers increased," he said. "The business grew from 12-15,000 tonnes a month to 18-20,000 tonnes. We'll be back with marine gas oil (soon) and I can assure you the price will drop again."

ast-West has accused LMS of anti-competitive behaviour and of wanting to dominate and monopolise the bunker business and to drive competitors out of business. It said it got a bunkering license from the Ministry of Power and Energy in 2002 allowing it to supply marine fuel oils either by bunker barges or tankers or through a land-based terminal and was not obliged to use a land-based facility. The use of floating storage is cheaper and easier. East-West entered the bunkering business in September 2003 and has been supplying marine oil to ships in and outside Colombo port using bunker barges.

LMS wrote to the SLPA in September complaining that the SLPA was allowing others to handle bunkers in Colombo port without using the common user facilities which it said violated its agreement with the government. It said the SLPA was obliged to ensure that all bunker supplies would be via the common user facilities.
East-West maintains that there was no such provision in the draft agreement which it says is "materially different" from final agreement signed between LMS and government authorities.

It has written to the Treasury Secretary saying the insertion of "an extraneous clause" into the final agreement was done without the knowledge of other bidders and should be removed.

Back to Business