Financial Times

LIOC says it can sell LP gas at a profit
Lanka IOC, which broke the effective monopoly of multinational Caltex in the lubricants market, is set to challenge the virtual monopoly of Shell in the LP gas market and says it can sell at prevailing prices and still make a profit.

Lanka Indian Oil Company, which plans to make a public share issue to raise funds this week, is looking to venture into new avenues of petroleum products such as bunkers and aviation fuel, apart from LP gas.

LIOC, the subsidiary of the Indian Oil Corp, which is the second player in petroleum retail market, plans to issue 100 million ordinary shares with a par value Rs 10 in the IPO set to open on November 29, 2004 Its entry into the LP gas market comes despite the challenges faced by the existing players with rising oil prices and the government's refusal to pass that burden to the consumer.

Shell Gas Lanka dominates the LP gas market with a market share of more than 85 percent. Mundo Gas, the third player in the gas market, has pulled out because of losses and the company is to be wound up.

Shell has said it will continue to operate despite an apparent loss on every unit sold in the market. LIOC is confident of their ability to serve the Sri Lankan consumer at the same prices that are prevailing in the market and still not make a loss. This was revealed to The Sunday Times FT by LIOC Managing Director Mahadevan Nageswaran at a conference held last week on the company's IPO.

LIOC will have the ability to do this because of the economies the company operates with, he said. IOC is one of the largest producers of LP gas in the world producing under the brand name Indane and it plans to take advantage of this core competency.

LIOC's biggest investment will be the construction of a new lubricant blending plant in Trincomalee for which a total of $15 million will be set aside from the IPO. IPO money will also be used to refurbish the existing LIOC outlets and on other expansion plans.

LIOC is also looking at bunkering and aviation fuelling with the bunkering operations expected to be carried out from Trincomalee. The aviation refueling industry, which has grown rapidly, is expected to grow further with the increasing tourism prospects.

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