Pro-Litro activists urge buyout or lease of LAUGFS storage facility over JV

• Renew warning that new State-backed joint venture will pose serious implications, financially and otherwise

Pro-Litro activists have suggested that the dominant State-owned entity buy competitor LAUGFS’ LPG storage facility with an international partner, instead of forming a questionable and financially disastrous joint venture (JV).

J.A.S Terrence Appuhamy, a spokesman for Litro Surakime Jathika Ekamuthuwa (LSJE), or Litro Surakime National Unity – a collective of employees and members of civil society – said the acquisition was among several solutions proposed to ensure a pragmatic way forward to resolve the prevailing crisis in the LPG industry.

“We have requested the Government to purchase the LAUGFS Hambantota LPG storage facility outright as a joint venture with an international industry leader, or to lease the terminal for 10 years. 

We have even suggested and recommended taking over their entire LPG operation to ease their burden,” Appuhamy said.

It was pointed out that weightage given based on storage facilities alone, and not the market share and customers serviced, could overshadow the entire industry in the country, as well as the Cabinet-approved joint venture entity Siyolit Ltd., in their ability to procure LPG at competitive rates. 

“Added to that is the burden of servicing the large debt obtained to finance the LAUGFS terminal, which can further impact the industry potential,” he claimed.

As opposed to LAUGFS’ $ 65 million, 30,000-ton storage terminal, Appuhamy said that with an 8,000-ton storage facility, Litro Gas Lanka currently fulfils the market need for 33,000 tons without any interruption to their supply chain. Litro claims 80% of the LPG market share.

He said the Consumer Affairs Authority had recognised Litro Gas Lanka’s cost leadership capability, having acknowledged their cost efficiency as the best in the industry.

“During our entire history, we have not had any supply issues. We have even supplied LPG to LAUGFS to meet their requirements and overcome their supply issues,” Appuhamy added.

He also pointed out that, if needed, Litro has the potential to obtain floating LPG storage options that could store up to 40,000 tons – without any additional cost. Competitive rates for such an operation have already been offered to the company as well.

Litro obtains LPG from the Government of Oman on a two-year contract which stabilises prices. It also ensures high quality and optimum LPG mixture, which doesn’t happen when LPG is bought from any supplier with a floating LPG cargo at spot prices, noted Appuhamy.

“Our Kerawalapitiya freight rate is $ 105 per ton and has been stable at this price throughout the contract period which continues until 1Q of 2022. In fact, we have got even better prices due to our market dominance and established supply channels, and even this rate can be re-negotiated,” he said.

“We know the competition buys LPG at spot prices sometimes as low as $ 80 per ton, but we don’t know the level of quality. The trouble with spot cargo purchases is that often what is available as spot cargo is low quality LPG loaded a long time ago.”

He reiterated that, although LAUGFS had put up a mammoth storage facility in Hambantota, the freight prices would still be impacted since the LPG unloaded at Hambantota has to be transported to the Kerawalapitiya Litro Gas Lanka hub in the Western Province, where the LPG demand is experienced most.

“In fact, such detours would not only raise prices but cause delays and issues – for instance, there’s only one loading arm at the Hambantota for a LAUGFS terminal; if something goes wrong, the market would face shortages of LPG.”

Around 30% of the customers in Sri Lanka use LPG gas purely as cooking fuel, and another 52% of customers use dual fuel, one of which is LPG. For these customers and the industrial segment which relies heavily on LPG, the way forward for LPG is critical.

Appuhamy and LSJE opine that the optimum path forward is to acknowledge the industry strength of Litro Gas Lanka as the LPG sector leader and to ensure a level and balanced playing field that will not favour one party over the other.