Financial Times

Bunker battle takes new turn
The battle for bunkering in Colombo Port has taken a new turn with the John Keells Holdings subsidiary, Lanka Marine Services (LMS), trying to block a proposed settlement between the Sri Lanka Ports Authority and the Sri Lanka Shipping group, which is seeking to enter the market.

Sri Lanka Shipping group firms have vowed to continue what they call the battle for justice in the bunkering arena. Sri Lanka Ports Authority recently informed Sri Lanka Shipping that it could go ahead with providing bunkers inside the harbour limits if the latter withdrew its legal action seeking to overcome restrictions on entering the bunkering business.

But the SLPA later told Sri Lanka Shipping it was unable to go ahead with the move because the Appeal Court had given an order, after a fresh plaint filed by LMS, suspending moves towards a settlement pending the next hearing on June 9, Sri Lanka Shipping director Mohamed Reza said.

"If this is the case, Sri Lanka Shipping will continue litigation until the matter is settled." LMS officials declined comment while SLPA officials were not immediately available for comment. The Sri Lanka Shipping group firms went to court against SLPA saying their fundamental rights had been violated by the restrictions on bunkering.

"If LMS has obtained an order to stop the settlement of the dispute between SLPA and Sri Lanka Shipping group then we will instruct our solicitors to look into whether LMS has now infringed and violated our fundamental rights," Reza also said.

Sri Lanka Shipping had sought to enter the market through its new associate firm, Lanka Bunkering Services (LBS), which is a joint venture with Chemoil Corp., a big US marine fuels firm.

But it was unable to do so because of an effective monopoly held by Lanka Marine Services, the former state bunkering monopoly that was acquired by the JKH conglomerate when it was privatised.

LBS, and the Sri Lanka Shipping subsidiary Lanka Maritime Services, went to court over what they allege is an attempt by the JKH subsidiary to effectively retain its monopoly, contradicting efforts to open up the market and reduce prices.

LBS has also told the court that it reserves the right to claim damages for financial losses, estimated to be over Rs 50 million, suffered owing to the restrictions. LBS has earlier said it had managed to persuade its joint venture partner, Chemoil Corp. to waive the right to claim damages in preparation for a settlement. LBS had invested $15 million in the bunkering operation. In this dispute, Sri Lanka Shipping group firms have challenged restrictions on competition that have arisen from the agreement between the government and JKH in privatizing Lanka Marine Services.

The dispute centres on a controversial clause in the LMS privatisation deal that appeared to effectively restrict other players from supplying bunkers by compelling them to supply marine fuel through storage tanks used by LMS.

LBS went to court when the Sri Lanka Ports Authority enforced the restrictions preventing it from selling bunkers it imported using floating storage tankers. Chemoil Corp pulled out after the joint venture's operations were delayed by SLPA restrictions.

Earlier, it appeared both sides might settle the issue after a ruling by the Attorney General that SLPA restrictions on rival firms doing bunkering in port could be unlawful.

The AG ruled that any refusal by the SLPA to allow other companies to sell bunkers in Colombo port could be a violation of their fundamental rights. Bunker prices in Colombo remain among the highest in the world despite the privatization of LMS which was meant to open up the market for competition with the aim of reducing prices and increasing sales.

The number of ships taking bunkers in Colombo has fallen because of supply restrictions and high prices. Industry officials said increased competition could improve availability of marine fuels and bring down prices although Colombo could never hope to match pricing in bunkering hubs such as Singapore or Dubai which are also major crude oil refining centers.

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