Financial Times

LMS cuts bunker prices, raises storage

Lanka Marine Services (Pvt) Ltd (LMS), the sole supplier of marine fuels at Colombo port, has progressively reduced its prices after its acquisition by the John Keells conglomerate, and is expanding and upgrading its facilities.

LMS wants to further reduce bunker prices and attract mainline vessels to take bunkers in Colombo with additional cost-cutting measures. Until the privatization of LMS in August 2002, the bunker prices in Colombo were regarded as among the highest in the world, with LMS catering mainly to feeder vessels.

"We have already reduced the price differential between Colombo and Singapore and are looking to narrow the gap as far as possible," said Sanjeeva Fernando, LMS director and general manager.

The price difference of marine gas oil (MGO) and fuel oil between Colombo and Singapore have been progressively reduced to $ 70 and $ 50 per metric tonne respectively. The differentials before LMS was privatized were $ 120 and $ 70 per metric tonne.

"Ships sailing on the East -West shipping lanes take on more fuel at ports such as Singapore at the expense of carrying more cargo as buying marine fuels (bunkers) at Colombo has historically been more expensive," LMS director Waruna Rajapaksa said.

"We benchmark ourselves against Singapore," he added. "We can never beat Singapore on price unless we have additional refining capacity in Colombo. Marine fuels in Singapore are cheaper because its bunker supplies are primarily ex-refinery, whereas in Colombo wesupply imported product due to all fuel oil produced by the Ceylon Petroleum Corporation refinery being used for thermal power generation.

"But this situation may change if some of the refinery projects in the pipeline materialize and fuel oil and gas oil are available in sufficient quantities ex-refinery."

LMS, which previously bought its fuel supplies on the spot market, is in the process of finalizing term contracts with major fuel suppliers, Rajapaksa said. "This would reduce the potential volatility in the purchase price of fuels."

LMS also intends to double storage capacity from its current 28,000 tonnes to around 50,000 tonnes by building larger storage tanks that will lead to economies of scale in purchases, which in turn could lead to lower prices, Fernando said.

LMS is now rehabilitating existing tanks, some of which had not been cleaned since the 1940s. It plans to spend over $5 million over the next five years to install additional tankage and related infrastructure. "It is imperative that we increase tankage," Fernando said. "Now we buy 6-7,000 tonne parcels of MGO and 20,000 tonne parcels of fuel oil, which is less economical. We hope to buy larger parcels of MGO and fuel oil thereby paying less dead freight charges on the cargoes imported."

Fernando said he has had a "satisfying rise" in bunker sales year-on-year, and that individual purchase quantities had also increased, with ships that used to take 300 tonnes of fuel oil now purchasing in larger quantities of upto 1,000 tonnes at a time.
The operational efficiencies of LMS has also been improved with supplies of bunkers being made available around-the-clock, seven days a week, without specific prior notice being required in order to meet customer needs.

LMS is upgrading its supply barges by installing new and faster pumps, and introducing segregated tanks to handle both fuel oil and gas oil on the same barge, to increase the turnaround time, Fernando said.

To complement the increased operational efficiencies of LMS and based on employee requests, the company has offered a Voluntary Retirement Scheme. This would reduce excessive overhead costs and enable such reductions to be reflected in the product pricing.

Of the current staff strength of 433, the security staff alone number 98 and the personnel department another 58 people even though the original CPC staffing for LMS was much less.

High interest rates deter SMI sector

High interest rates and long-term liabilities have kept Small and Medium Industries (SMI) down and prevented this sector from rapid growth, said Minister of Enterprise Development, Industrial Policy and Investment Promotion and Constitutional Affairs Prof G.L. Peiris at the recent Business Development Services (BDS) market conference.

"To nurse and guide the SMI sector in a situation when the country is going through internal and international turbulence, is the need of the hour," he added. This national conference was organised by the Ministry in collaboration of ILO and GTZ. The official web site of the BDS market directory was launched.

He said that the government is now paying more attention to this sector which is considered as the backbone of the country's economy However Peiris noted that to build a foundation in the SMI sector, local business services could use human resources to the optimum level to strengthen and fortify the SMI sector. Secretary to the Ministry of Enterprise Development, Industrial Policy and Investment Promotion Ranjith Fernando said that SMI 's find it difficult to provide collateral and high interest rates. He said the business development services institute could reduce the risk for such entrepreneurs which is a vital requirement for the well being of the economy.

Back to Business