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Govt. failure to revise distributor margins may result in LP gas shortage


Comments / {{hitsCtrl.values.hits}} Views / Monday, 27 August 2018 01:09


  • Distributors say impossible to continue operations due to extensive outflow of finances, trained staff seeking alternative employment 
  • Claims last price revision on channel and transport margins were made in 2007 and 2012
  • LP Gas Distributors Association of Sri Lanka calls on CAA to increase channel margin to 12.5% from current 7.5%
  • Seeks appointments with Industry and Commerce Minister Rishad Bathiudeen and Public Enterprise Minister Lakshman Kiriella to resolve situation
  • Distributors or dealers haven’t received any tangible benefit from price adjustments 
  • Entrepreneurs urge Govt. for business environment to at least continue on a breakeven point
  • Highlights remarkable commitment, extensive investment in safety and education of employees and stakeholders resulting in no major incidents over past 22 years

By Charumini de Silva

With the Government continuing to overlook the need to revise prices for transport and other overheads involved in distribution of liquid petroleum (LP) gas, the distributors insisted that they are reluctantly compelled to downsize the deliveries if the issue is not addressed immediately, cautioning of an acute shortage of LP gas island-wide. The LP Gas Distributors Association of Sri Lanka (LPGDASL) pointed out that they find it extremely impossible to continue their operations due to the extensive outflow of finances and face difficulty retaining trained staff, who now seek alternative employment in the absence of solutions to their grievances.



“With every day that passes without a sufficient margin and a transport margin considering the current fuel hike as well as depreciation of the rupee, we are being pushed towards a severe financial crisis, which will result in an acute shortage of gas to households, industries, tourist hotels, and crematoriums island-wide,” LPGDASL President Sathyendra Wijayapura told the Daily FT.



As the sole regulatory body, the Consumer Affairs Authority (CAA) introduced a pricing formula in 2007, which has not reviewed the current distribution channel margin for distributor and dealer, while the district-wise transport margin has never been addressed similarly, except once in 2012 on a small-scale.



According to him, although there is a clause in this agreement on adjustments in the transport costs, which will be reviewed annually except in the event of a price adjustment of diesel in excess of Rs. 5, whereupon a proportionate adjustment would be made, the authorities have overlooked this term in the aforesaid pricing formula for years. 



Highlighting that 7.5% is received currently as distribution channel margin for distributor and dealer since 2007, the Association has called on CCA to revise this margin to 12.5% with immediate effect considering the diesel hike, depreciation of the rupee and other costs involved in the distribution process.



He claimed that, despite the Government increasing the price of 12.5kg LP gas cylinder by Rs. 100 in September last year and by Rs. 245 in April this year, the distributors or dealers have not received any tangible benefit from these price adjustments.



Outlining that there is a significant price increase in the distribution process since 2007 to 2018, Wijayapura said that they were managing to continue the delivery of LP gas without any shortage in the country thanks to the additional buffer of Rs. 17 provided to the dealers by Litro Gas Lanka Ltd. from its profit share. 



“A total of 35 distributors dispense to a dedicated channel consisting of around 8,000 dealers spread all over the country. There are over 75,000 dependents in this business as employees, stakeholders and service providers. Consisting of a wide variety of small and medium entrepreneurs (SMEs) throughout the island, as entrepreneurs, we request the Government for a business environment where we could at least continue on a breakeven point,” he stressed.  



Wijayapura said diesel prices have gone up by Rs. 23 since April this year, an increase of 24.21%, while  four-star diesel prices were increased again last month by another one rupee. With future vehicle standards being ‘Euro 4’, all the trucks that transport gas would have to shift in time to come, where the distributors once again will have to incur a further burden on the price, he added. 



In addition to the diesel price increase, he said the dollar has appreciated tremendously over a short period of time, and all the other inputs in our distribution process such as tyres, spare parts, lubrication service costs, lubrication oil costs, and the financial costs for borrowing, leasing, safety gear, fire and control equipment have skyrocketed in price and in a much higher percentage than the devaluation of the rupee.



It was pointed out that Litro Gas Lanka Ltd. issues the cylinder filled with gas from their storage and filling plant to the distributors strictly on immediate payment terms, where the distributors do the rest of the work until it reaches the dealer network to be supplied to the consumer. However, distributors directly deliver to most commercial establishments on varied payment terms. 



He also said the distributors are required to keep a large stock of empty cylinders to distribute, while maintaining at least a three-day stock in order to meet any delay at a filling plant or due to bad maritime conditions to eliminate a possible stock-out situation in the country.



“Distribution of LP gas is unique and special, therefore it cannot be compared with other distribution systems and businesses due to its risk and difficulty in handling. It is one of the most labour-intensive processes. We have dedicated staff trained to handle, load and unload as well as transport gas cylinders with custom-built trucks which strictly load according to the Registrar of Motor Vehicles (RMV) regulations. A prime mover load of gas cylinders is like transporting 1,068 explosive units per trailer. We have been conducting this business without any major incidents for the past 22 years due to the remarkable commitment, and extensive investment in the safety and education of the employees and stakeholders of our business,” he explained.



Further describing the unique distribution and difficultly it involves, he noted that a LP gas cylinder is loaded and unloaded eight times before it reaches its final destination by the staff. 

“This is one of the key aspects of the requirement of skilled workforce, and all our trucks will have to carry the empty metal cylinders in and out of all the routes so our vehicles never travel empty. We ensure very high standards in terms of vehicle maintenance, and there is a checklist for each vehicle to monitor and evaluate the function and road worthiness of the vehicle. The vehicles are constantly checked by our staff and Litro Security Staff before loading. The slightest change in the employee turnout would result in the upsetting of the entire delivery schedule,” he said.



He added that they have sought appointments with Industry and Commerce Minister Rishad Bathiudeen and Public Enterprise Minister Lakshman Kiriella to discuss the issue and arrive at a solution to continue the business without any disruption.   



LP gas is the most popular, convenient and economical energy source in domestic and commercial use, including for cooking, the hospitality trade, and agriculture (animal husbandry), etc. At present, over 5.5 million households use LP gas as the main cooking energy source, and there are two brands, Litro Gas and Laugh Gas. Litro Gas enjoys over 73% of the market, which is over 4.25 million households.

CAA mulls new pricing formula for LP gas

  • CAA’s Pricing Committee to submit final document to Cost of Living Committee and Finance Ministry soon 
  • Authority dismisses reports on LP gas hike, says CAA has not issued any directives  

The Consumer Affairs Authority (CAA), the sole regulatory body for the pricing of liquid petroleum (LP) gas, confirmed that work is in progress to introduce a new pricing formula for the industry. 



“The two companies involved in distribution of LP gas in the country have lobbied to change the prevailing pricing formula which was introduced in 2007. 



The Pricing Committee of the Authority is now working on it,” a CAA Spokesperson told the Daily FT.



He said that the document prepared by the CAA Pricing Committee will be submitted soon to the Cost of Living Committee and Finance Ministry for approval.



The CAA, as the sole regulatory body, introduced a pricing formula in 2007, allowing then Shell Gas Lanka Ltd., now Litro Gas Lanka Ltd, a lesser margin (18% on landed cost), and a higher margin to Laughs Gas ( 30% of landed cost). Various representations made by the two companies over the years have not helped in finding a lasting solution to the issue as it has to be approved by the CAA.



In addition, the Authority also dismissed alleged reports on LP gas price hikes in the near future, insisting that the CAA has not issued such a directive.



“The two companies have submitted applications to revise prices of LP gas, but the Authority has not given approval for it as of yet,” he confirmed. 



Reports quoting the Cost of Living Committee last week said that price of a 12.5kg gas cylinder will be increased by Rs. 158 with effect from 25 August. 



He further said that the pricing of LP gas is decided by the CAA, hence it was not necessary to put forward the two proposals to the Cost of Living Committee. 

 


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