Shylock in Shell?

Friday, 8 October 2010 01:34 -     - {{hitsCtrl.values.hits}}

By Uditha Jayasinghe

The Government seems to be taking on a mixed bag of tricks with the repurchase of Shell Gas Lanka Limited (SGLL) and Shell Terminal Lanka Limited (STLL) at a cost of US$ 63 million, despite the Cabinet paper noting that a US$ 16 million capital reduction and US$ 4 million dividend payment had been agreed to by the company.

Media Minister Keheliya Rambukwella told the weekly Cabinet media briefing that the Government had decided to buyback 51% of SGLL and 100% of STLL and the transaction was to be financed through Bank of Ceylon, People’s Bank, National Savings Bank and Sri Lanka Insurance Corporation.ntrolling interest, it plans to issue the remaining 49% of shares to the private sector, effectively forming a public-private partnership. He insisted that the decision was finalised and the money allocated, but Shell Gas in a statement contradicted this, saying that the negotiations were still ongoing.

The Minister also detailed measures to list the company in the Colombo stock market and move for a possible Initial Public Offering (IPO), though these are yet to be completed. The Consumer Affairs Authority (CAA), which regulates prices based on a formula agreed to by the two companies and makes the announcements bimonthly, will continue to do so for the foreseeable future.

Throwing a spanner in the works, however, is one paragraph of the Cabinet paper, which notes: “After a capital reduction of US$ 16 million and US$ 4 million dividend payments, Shell International Petroleum Co. Ltd. quoted a price of US$ 92 million as the selling price for both companies. After several rounds of negotiations, Shell agreed to sell both companies as ongoing business concerns for US$ 63 million.

“It also stated that the Chief Valuer has estimated both companies for Rs. 17,440 million (US$ 154.37 million). Bank of Ceylon has valued the same as ongoing business concerns and recommended a price ranging from US$ 65 million to US$ 70 million. The maximum price recommended is US$ 70 million. The Project Committee, based on the report submitted by the Bank of Ceylon recommended a price range of US$ 65-70 million for the negotiations.”

Regarding employees, the document stated that Shell Gas and the Government were having issues as the former wished the staff to remain for 24 months with the present remuneration. Even though the Government wanted this clause changed, Shell refused to do so and an agreement was reached to decide the future of the workers in accordance with laws and requirements of the Labour Department.

As part of the rebranding agreement, Shell has agreed to extend the rebranding period from three years to four years for cylinders.

“We are very confident that we can supply gas to consumers at low prices now,” Minister Rambukwella stressed at the press conference, pointing out that while previous governments had focused on privatisations which resulted in significant public resources being wasted, the current establishment was focused on regaining those enterprises for the people. “We consider this to be a landmark. The mistakes of the past are being rectified.”

LAUGFS laughter over win-win situation

LAUGFS Gas, Shell Gas Company’s former rival, may become part-owner of the establishment following a Government decision to give 49% of its shares to the private sector.

LAUGFS Gas Chairman W.K.H Wegapitiya told the Daily FT that he was “very happy that a national asset has been brought back for the people,” and talked positively of the synergies that could be harnessed from the buyback.

He recalled that LAUGFS had been one of the first parties interested in buying the Shell facilities when the removal was announced, but that the company was compelled to negotiate with the Government since it already owned a stake.

However, he expressed keenness to invest in the 49% to be put up for private sector investment by the Government.

“I find it very positive that the Government has decided to hand over 49% of shares to the private sector, because in this present environment it might not be advisable for it to get into business. I believe that the private sector should be given the chance to expand business through investment and public enterprises, which must be run in an efficient manner,” he said, adding that the profit-oriented mindset was what would make Shell a competent company.

Wegapitiya was also optimistic about the possibility to synergise with Shell so that the businesses would grow together and dismissed any concerns of a monopoly.

“If the two companies can share infrastructure in the form of filling plants and terminal, the saving would be huge. The other point is that we can get joint procurement so that instead of two companies purchasing small amounts of LPG, there can be bulk shipments that would be cost effective.”

He insisted that these measures would result in lower prices that can be directly passed onto the consumer.