Business Times

Shell shocked by cylinder losses

Shell Gas Lanka, a subsidiary of multinational Royal Dutch Shell plc, says it is losing 150 to 200 of its Shell branded cylinders per day. At a media briefing on Wednesday, the company said the high rate of gas cylinder losses was eating into its asset base and noted that the Shell-gas-cylinder-stealing-business was thriving because local intellectual property laws are not properly enforced.

“We have injected about 2 million gas cylinders into the market by now, but now we are facing an alarmingly high loss of cylinders. We are losing about 150 - 200 cylinders per day. This points to a lack of a sound regulatory framework and lack of proper implementation of intellectual property laws,” the Chairman of Shell Gas Lanka, Dr Mahesha Ranasoma, told journalists. Shell says its cylinders are being stolen, re-branded/defaced, cross filled and re-issued to the market. Shell says this is not just a loss for the company but is also a loss to consumers and is a public danger.

“When they cross-fill and sell at a lower price, what are the quality checks? How do you know you are not missing a kilo or so of gas, or that the valve is not leaking? But if something goes wrong and the cylinder has Shell markings, people will associate it with Shell,” said Dr Ranasoma.

Shell Gas Lanka is also in arbitration to claim up to US$ 10 million in compensation, for losses that it says accrued over a period of about 18 months, ending in October 2009. These losses are attributed to the Consumer Affairs Authority (CAA) not allowing Shell to increase gas prices by the requested amount. Shell Gas Lanka is asking for compensation from the regulator and is also asking the CAA to follow the pricing formula in future.

In 1995, the state owned Colombo Gas Company was privatized and 51% of its shares sold to Royal Dutch Shell. The balance shares are owned mainly by the government of Sri Lanka and a very small percentage is owned by employees. In 1995, as part of the privatisation deal, the company was also given a 5 year monopoly of selling liquid petroleum gas (LPG ) in Sri Lanka.

Since privatisation Sri Lanka’s gas prices have increased many times over (mainly due to the company passing on costs to consumers, instead of adopting the government practice of subsiding consumers).
However, despite its 5 year monopoly, frequent price increases and private multinational oriented management, since taking over in 1995, the company has only declared one dividend and says that it is currently operating below equity.

The company says this is because its losses wiped out its equity. On the plus side, since Shell came into the picture, LPG usage has increased (despite the large price increases) and the company has also invested in a filling plant and importing and storage facilities. Shell Gas Lanka currently holds 80% of the local market that has just one more player – Laugfs Gas - who entered the market in 2001.

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