Financial Times

Lanka IOC loses Rs 218 mln amidst heavy taxes, hedging

By Bandula Sirimanna

Lanka IOC (LIOC) has lost Rs 218 million up to now on retail sales of diesel and petrol amidst heavy taxes imposed by the government and losses from hedging. The company has hedged small quantities of oil with Commercial Bank, Citibank and Deutsche Bank during the past two years, an LIOC official said.

LIOC Managing Director R. Ramakrishnan said that they have to pay for the ‘bottom end of the hedge’ as the fuel prices are dropping rapidly. But he noted that his company was losing money on petrol with a 26,000 tonne stock imported at $144 a barrel, three months ago. “We have imported a large parcel of petrol of 26,000 metric tons for three months in July at $144 which resulted in the Rs. 218 million loss to the company,” he said. LIOC has hedged about 30 % of its total import volumes. The contracts are due to expire in July 2009.

Mr. Ramakrishnan pointed out that his company has to pay additional taxes imposed by the government while the Ceylon Petroleum Corporation (CPC) will not have to pay these taxes and thus the state-owned petroleum utility can afford to bring down the prices of fuel. He said that LIOC will definitely consider a price revision in December this year if the oil prices continue to fall further. The government has imposed taxes amounting to Rs. 72 on a litre of petrol and Rs. 17 on diesel marketed by the LIOC. He accused the Sri Lankan government of imposing unfair import duties on imported refined oil affecting the company more than the CPC.

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