No deal reached with CAA on pricing formula move: Laugfs

In response to a recent statement from a top official of the Consumer Affairs Authority (CAA) confirming that an amended pricing formula for LPG has reached the final stages and that it will be submitted for Cabinet approval in the near future (as quoted on Daily FT on 1 October), LAUGFS Gas PLC said yesterday that no agreement has still been reached with CAA relating to a new LPG pricing formula, which if formulated should be based on the industry cost structures.

The local LPG industry has been facing a severe financial crisis over the past few years, which was primarily triggered by the continuously rising global LPG prices, shipping and transportation costs as well as material costs. The depreciation of the rupee has further exacerbated the impact of the increasing prices, having a ripple effect on all industry stakeholders throughout the value chain.

“When facing a similar crisis situation in 2007, LAUGFS Gas had made industry representations to introduce an LPG pricing formula to reflect volatilities in global and local socio-economic factors in a transparent and mutually beneficial manner for both suppliers and the consumers. An effective pricing formula would benefit both the industry as well the consumer by safeguarding the industry during global price hikes, while passing on the benefits of a global price reduction to the local consumer. During the year 2007, approval had been provided to the CAA to implement two structured pricing formulae for Litro Gas and LAUGFS Gas respectively. Following this, the Supreme Court-endorsed pricing formula that was assigned for LAUGFS Gas has been closely followed by the CAA. However, this has been discontinued by the CAA in the recent few years for unknown reasons, and as a result, the ceiling retail prices assigned by the CAA for LPG has not followed an effective basis to reflect the real market conditions,” stated LAUGFS Group Managing Director Thilak De Silva.

With mounting losses accumulated due to the local LPG retail prices not effectively aligning with the industry cost structures, and considering the significant impact of this on the LPG value chain and all other stakeholders including investors, LAUGFS Gas has been continuously making industry representations to CAA, seeking to implement the already approved pricing formula.

“It is critical that industry stakeholders are consulted when addressing this matter, since it is paramount that the officials effectively understand the industry cost structures and various market dynamics involved that are unique for our industry. We have been closely working with the CAA to address this crisis situation in a collaborative manner, and have already had several rounds of discussions, with all necessary information being submitted for them to gain a better understanding. Considering the current crisis situation and the need for urgently implementing an effective solution, we have informed them that we are even willing to accept the pricing formula approved for State-run Litro Gas Lanka or a common formula applicable to the industry. However, we have not been informed of a solution as yet and therefore have not reached a consensus on this matter. Therefore, we were surprised to see a statement by a CAA official that such a formula has now reached the final stages to be submitted for Cabinet approval in the near future,” stated De Silva.

“The entire LPG industry is currently in a very dire situation, which needs to be urgently addressed. That is why we have repeatedly appealed for a solution to be implemented in consultation with relevant industry stakeholders. This is not a mere issue concerning a company or an industry. The failure to urgently address this situation will have a negative impact on the country’s economy as well. The livelihood of thousands of people depend on the LPG value chain; from the distributors, dealers and suppliers to investors and employees, whose families depend on the CAA’s urgent decisions and actions on this matter.”