LAUGFS Gas (Pvt) Limited

The Colombo Gas Company, the Government owned exclusive player in the LPG business Sri Lanka was privatized in 1995, with the idea of creating a better market environment for consumers. Not only the management rights but also a five year trade monopoly was given to the foreign multinational company who took over Colombo Gas Company to achieve this objective.

However, no need to mention the hardship that the Sri Lankan LPG consumers went through during 1995 to 2000, as a result of this exclusive and protected market environment.

In the year 2001, LAUGFS Gas found the entry in to the LPG business in Sri Lanka with the encouragements received from all stakeholders, especially with the blessings of Chandrika Bandaranaike Kumaratunga the then President of Sri Lanka, who directly supported in breaking all barriers thus paving the path to our entry.

The objective of promoting a Sri Lankan company to create a competition in the LPG business was to bring long-term benefits to the local LPG consumers. Hence, LAUGFS was given a chance to secure access to the indigenous supply source; LPG produced by the refinery own by the Ceylon Petroleum Corporation at a concessionary price of Rs. 15,000 per M/ton, much higher price than what Shell Gas Lanka has been paying for six years from 1995 to 2001. Shell Gas Lanka has been buying the entire LPG produced at the refinery at Rs. 12,000 per m/ton for almost six years starting from 1995.

LAUGFS was supposed to pass this benefit to the LPG consumers in Sri Lanka by fixing the retail price Rs. 100 per domestic cylinder less than the retail price of Shell. Accordingly, LAUGFS entered into the LPG market on the 22nd October 2001 and sold domestic cylinder at Rs. 409.00 whereas the Shell Gas was at Rs. 509.

The long-term objective of the joint effort of LAUGFS and the Government expected to create a healthy competition much advantages to the local LPG consumers was disturbed within less than two months of operation, when the Government was changed in December 2001.

The then appointed Minister of Commerce and Consumer Affairs of the government unilaterally and forcibly changed the terms and conditions of the agreement that LAUGFS has entered with the Government and CPC, thus forcing LAUGFS to buy LPG at a higher price of Rs. 20,000 per m/ton from the local refinery.
Hence LAUGFS was forced to raise their retail price in par with the retail price of Shell whereby LPG consumers in Sri Lanka lost the opportunity to buy LPG at a cheaper price. Even today we are been blamed not keeping this promise of Rs,<7}> 100 cheaper LPG; despite we a local company. We urged again and again to all concern it was not our fault; it was a result of a group of people who had vested interests and malicious intentions.
Now we blame the global scenario. As you all know the hostile political situation irrupted in the Middle-East region in year 2002, promptly resulted to an energy crisis thus escalating prices of all energy products in the world market. Middle-Eastern countries produce almost 80% of the LPG supply to the world market. They setup the bench mark price of LPG that is used globally in LPG trading businesses.

The crisis in the Gulf countries, bad weather, and increasing demand in Asian countries further deepened the crisis resulting high cost of LPG, thus forcing us to increase our retail prices. The local refinery owned by the CPC is supplying only about 1,200 m/tons of LPG per month which equals to 40% of our requirements and the balance 60% is sourced from the world market by way of imports. Many think that we are enjoying special price from CPC for LPG buying from their refinery.

The truth is that we pay CPC for LPG purchase from them is a the world market price decided monthly basis, calculated in US Dollar terms and converted into rupees based on the current exchange rate. When world market price go up; CPC also increase their selling price accordingly.

Starting from June 2005 the world market price of LPG has been escalating in an abnormal phase ending at USD. 627.00 per m/tons in February 2006, which is noted as the highest ever world market price registered in the history. This is a crisis that almost all the Asian countries are equally facing. However, in many Asian countries the respective governments have intervened by absorbing this shock without passing it to the customers.

We as the only Sri Lankan company engaged in the LPG downstream business in Sri Lanka thank the government, officials of the different authorities and finally our valued customers for understanding the situation and being with us during this crisis.

W.K.H. Wegapitiya – Chairman
