Business Times

LIOC: No–win situation in fuel price issue

By Bandula Sirimanna

The government move of slashing the import duty on fuel by Rs.34 and thus reducing petrol prices by Rs. 15 just about a month ahead of presidential polls has pushed Sri Lankan fuel retailers towards a no –win situation, according to K.R. Suresh Kumar, Managing Director of Lanka IOC (LIOC). “The tax reduction will help Ceylon Petroleum Corporation (CPC), and Lanka IOC to tackle their losses only if the petrol price were maintained at the previous level,” he said.

LIOC has been making losses during the past eight months except for a profit of Rs.1 per litre of petrol in November last year. At that time the purchase price of petrol was $40 per barrel, he said, noting that last month’s profits from petrol sales are likely to turn into losses as the current world market price is around $80. Referring to stocks, he said the company has a stock of 26 million litres of petrol and they are expecting a shipment of another 30 million litres next month so that there will not be a shortage of fuel before or after the elections.

Mr Suresh Kumar said that the government is still levying high taxes on fuel including the excise duty of Rs.25, 5%VAT, 3% Public Administration Levy and 1% Provincial council tax. He urged the government to reduce VAT and other taxes so that they could divert their profits from the sale of petrol to improve infrastructure at their retail outlets as well as the lubricant plant at Trincomalee. “There is an urgent need to review the duty structure and impose a rationalized duty structure with fixed and variable components to accommodate rise and fall in the import prices,” he said. LIOC incurred a loss of over Rs.2.2 billion last year due to high import duty other taxes and government directed prices, he said, adding that stability in prices would be possible if the government takes a long term view of the price structure and address the issue keeping the interest of all the stakeholders.

Meanwhile LIOC has increased its share in the country’s bunkering market, which some of its competitors alleged as anti-competitive practices that would hurt the sustainability of the industry. LIOC’s share had surged to a massive 60 %, allegedly due to its latest market practices of selling $10 to 20 lower than the market price, sources in the industry alleged. Citing an example they noted that on November 6 last year the price (CST) of High Sulfur Fuel Oil 380 in Singapore was $470 per metric ton while in Colombo LIOC sold it for $460. This was a concerted effort to undercut and desatabilise the market, they said.

But Mr Suresh Kumar pointed out that LIOC had to sell fuel to ships through bunkering at current international market prices. He said that if the company did not follow this formula, it would lose its competitiveness in the bunkering business. He said that more ships are calling at the Colombo port for bunkering and the company was planning to expand its Sri Lanka bunkering operations on a large scale. However he denied that they were selling bunkers at a price lower than that of Singapore, dismissing the claims that LIOC was not trying to undercut its rivals.

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