Business Times

SL economy volatility will raise prices :Top corporate

Sri Lanka's volatile economy will likely cause most serious issues for the local oil industry during 2012 as well as leading to the average consumer being faced with price increases for a range of goods, according to top corporate leader and Chevron Lubricants Chief Executive Kishu Gomes.
Making these comments in his company's 2011 Annual Report (AR), he also added: "The sudden depreciation of the rupee during the first two months of 2012, and the attendant jump in the cost of imported goods, including oil, will affect our industry both directly and indirectly. The steep hike in fuel prices in February (with increases of 8.75% on petrol, 36% on diesel and 49% on kerosene) has seriously affected the transport sector and could lead to a reduction in fuel usage, which in turn would result in a decline in the usage of lubricants."

Commenting on Chevron's 2011 performance, which saw a 17% year-on-year increase in turnover, to Rs. 11.03 billion, and a 33% year-on-year jump in after-tax profits, to Rs. 2 billion, both for the 12 months to end-December 2011, Mr. Gomes also noted: "Locally, while we did see positive industry growth, the high growth momentum of 12% seen in 2010 was not sustained, with growth in 2011 moderating to approximately 5%. As a result, sales volumes fell just short of our expectations.

The growth in the markets of the Northern and Eastern regions, while higher than the national growth rate, was again somewhat less than anticipated, as significant growth in the demand for consumer goods in these areas did not extend to semi-industrial products such as lubricants.

The volumes were also affected by severe weather, particularly the floods experienced in the country during the first quarter of the year. On a positive note, the vehicle population in the country grew by over 50% in 2011, as a result of the government's decision to maintain a reduced import duty structure on vehicles. While the large increase in the number of vehicles will not result in a proportionately high increase in lubricant consumption due to the longer drain intervals in newer motor vehicles, the influx of new vehicles will create more opportunities to market some of our high-end products."

Further, he also remarked: "Our exports to Bangladesh and the Maldives continued to do well, as we increased our export volume by 30% and further strengthened our ties with our distributors in both countries in 2011. In Bangladesh, we expanded our retail distribution network, and also won several new industrial accounts, particularly in the power generation sector, making us optimistic about our growth there."

On the other hand, Mr. Gomes also raised two anti-competitive practices affecting Chevron's ability to effectively compete. One was the longstanding conflict of interest wherein the Ministry of Petroleum was not only the industry regulator but also sold petrol via the Ceylon Petroleum Corporation. And the other; "Large scale projects are also allowed to directly import their lubricant requirements under special concessions granted for their projects. A mechanism should be introduced to allow local lubricant operators to supply these projects on a duty-free basis."

Meanwhile, also quoted in Chevron's 2011 AR, the company's Chairman, Farrukh Saeed, revealed that "the present land lease agreement with Ceylon Petroleum Storage Terminals Ltd. expires in July 2014. In order to sustain the long term growth of the business, the board has made a decision to relocate the plant at the expiry of the lease of the land. The board is currently evaluating the cost and benefits of several properties identified for this purpose."

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