A Gas Monopoly To Be Anticipated?  
Posted 31,May

By Chaveendra Dunuwille

In Local News

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A proposal has been brought up by the government to merge LAUGHS Gas and the state owned Litro Gas under one banner as a Public-Private Partnership (PPP). According to a  cabinet paper submitted jointly by the Finance and Trade ministries, this urgent restructuring  is a result of the large price reduction ahead of the presidential elections in 2019 and the  ongoing currency depreciation.  

At present, Litro Gas Lanka Ltd has 8,000 metric tonne (MT) storage capacity at  Muthurajawela gas terminal, which is only sufficient for a mere three or four day market  supply, whereas the LAUGHS terminal at Hambantota port has the capacity of 30,000 MT  with maneuverability up to 65,000 MT and they export supplies to countries such as the  Maldives, Bangladesh, Myanmar and India.  

Considered the increasing trend of fuel prices, the restructuring of the enterprises and their  resources is inevitable, to avoid a gas price revision in the near future. A cabinet  Memorandum signed by Prime Minister Mahinda Rajapaksa and Trade Minister Bandula  Gunawardena said that the oil prices may exceed USD 70 a barrel which is susbstantially  higher than the past six-year average of USD 40 a barrel.  

Another critical reason behind this proposal to merge the two LPG importing and distributing  enterprises is the high debt exposure to LAUGHS Gas of Rs 12.12 billion and Rs 10.1 billion  by the two state banks – the Bank of Ceylon and the People’s Bank – respectively, making it  difficult for the banks for further financing.  

The Cabinet Memorandum further noted that if the transportation of LPG requirement of both  companies is undertaken in one shipment to Hambantota, the total cost could be reduced by  about USD 70 a MT considering the procurement costs.  

The proposal suggested that the joint venture could be formed by consolidating the industry  with the cash balance and reserve assets of debt-free Litro Gas. Under this joint venture, LPG  can be transported to Sri Lanka on a large scale up to 30,000 MT and shared between Litro  (25,000 MT) and LAUGHS (5000MT). This could enable the country to export gas supplies  to Bangladesh, India and the Maldives, earning foreign exchange.  

In order to carry out the venture, the Cabinet recommended authorizing the Treasury  Secretary to direct Sri Lanka Insurance Company along with the Litro Gas Company Ltd  which is a subsidiary of the initially mentioned, to purchase equity stake of LAUGHS Gas  terminal up to 40 percent and to also secure two positions in the Board of Directors.  

Under this joint venture, the retail price of a 12.5kg cylinder could be fixed as Rs 1,493 (price  in Colombo) by removing Port and Airport Levy on the import of LP Gas.