The government should take over the LP Gas (LPG) business in view of the price increase which went into effect last week to prevent a situation where private sector monopolies can hold consumers at ransom. A concept paper written by me in 2008 based on the recommendations of informative and impartial consultants to the Ceylon Petroleum Corporation (CPC) included bold initiatives where the CPC would take over the LPG business in the country.
LPG was first bottled and distributed by the CPC and was later handled by the Colombo Gas Company which imported LPG in addition to using CPC refinery products. While the CPC refinery supplied around 20%, the balance 80% was imported. In 1994, a 13 kilogram LPG cylinder was sold to the consumer at a price of Rs.200 but Colombo Gas Company was running its operations at a profit.
However due to the continuation of the United National Party (UNP) government policy of privatization, it was privatized and sold to Shell Gas on a 51% (private) 49% (government) basis where the control and management of the LPG business became the monopoly of Shell Gas. Since the takeover by Shell, the government and the people expected a lot of development in infrastructure, shipping, transportation, storage, distribution and reasonable pricing of LPG so that LPG cylinders will become an affordable, popular and convenient source of energy for cooking and its use will spread to all corners of our country.
However on the formula agreed to by the government, Shell was able to increase the price of LPG cylinders according to market fluctuations.
Today the price of a 12.5 kilogram (the weight of LPG was reduced from 13kg to 12.5kg by Shell) has gone beyond the expectations of the people. In view of Shell’s monopoly in the LPG trade, when the agreed period of the first five years monopoly expired, the government through the CPC sold its refinery produce to local competitor m/s Laugfs Gas Company, expecting a reduction in prices.
Laugfs sold LPG for around Rs.100 less than Shell for some time, before increasing its price to match Shell. The government has had to intervene periodically in regulating both companies’ prices. The government then reviewed the possibility of the CPC going into the LPG trade. This was originally proposed by the CPC Board in 2000 when the CPC was asked to explore the possibility of entering the LPG trade.
The CPC hired local consultants to do a study and make recommendations in 2008. Upon submission of the report, the CPC was attempting to start a separate LPG Project using its own LP Gas. However this did not materialize though the consultants showed a lower cost operation and achieving a price differential of minimum Rs.300 less on a gas cylinder than that of its two competitor’s prices.
This is the most opportune time for the government to step in and start this project as we understand that a LPG cylinder can be made available to consumers at a price of less than Rs.300.With the planned increase of LPG production by the refinery, the CPC can deliver 40% to 50% of the country’s requirements and expand the LPG market to rural areas as well. It may be possible and even worthwhile to float a new joint venture company for LPG with the CPC as the major shareholder.
The CPC has great potential to supply the North and East and the entire island with its existing marketing network.
(The writer is the Former Working Director/ Actg.Chairman CPC - 1997-2002 and Former General Manager, Shell Gas Lanka and Colombo Gas company - 1994-1997) |
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