First regulate, then liberalise, says lubricant industry
View(s):Liberalisation of Sri Lanka’s lubricant industry that was recently sanctioned by the Cabinet has come under fire by existing players saying that the government should regulate the industry properly before opening it out. Now 13 players need to share a total market of 58 million litres leaving only 4.5 million average market potential per player which is the smallest opportunity for a single player in the region except Maldives, players alleged. ”The annual market size in India is 2000 million litres (2 billion) which is shared amongst 27 players. Hence the market potential opportunity for each player is 74 million litres. So one can argue that the Sri-Lanka market already has too many players in relative terms,” a lubricant industry official said.
This came on the back of the Cabinet this week approving certain proposals forwarded by the Treasury to liberalise this industry. It was proposed to call for applications from interested investors for new licences by the Ministry of Petroleum Resources Development while increasing the biannual fixed registration fee and licence fee from Rs. 1 million to Rs. 2 million and the maximum registration fee from Rs. 5 million to Rs. 6 million for players with immediate effect. It was also decided to instruct the Sri Lanka Standards Institute to issue national level quality certificates to imported and locally blended lubricants and authorise the Sri Lanka Public Utilities Commission (SLPUC) to act as the regulator of the lubricant industry.
Industry players say that multinationals who are manufacturing here may decide to move away and depend on finished goods importation like many others do. This will lead to loss of jobs and many other types of value additions to the country. “Further liberalisation can discourage any other current licensed holders to make an investment on a manufacturing plant due to limited economies of scale,” the industry official said.
He said that the local manufactures currently export products to several Asian countries bringing in foreign revenue to the country and if they lose the scale due to increased number of players they will become uncompetitive in foreign markets that can lead of loss of revenue to the country.
Chevron Lubricants CEO, Kishu Gomes pointed out that successive governments have failed to regulate the lubricants industry and it’s high time that things sped up. He said that between 15 to 20 per cent of the market is dominated by product adulterators, unlicensed importers and re-packers of cheap quality products given the poor regulatory measures and the ministry has just started to aggressively curb the issue together with the police and customs departments. “This issue prevents the government from collecting duties and taxes in addition to reduced sales commission otherwise would have been paid by the licensed players (big players have to pay a sales commission in addition to the license fee).”
The Treasury has, in a bid to combat this, asked the Consumer Affairs Authority to enact necessary legislation to provide quality lubricant products to the public and it was decided to instruct the Sri Lanka Customs and Department of Import and Export Control to strictly impose guidelines issued by the Ministry of Petroleum Resources Development. Proposals to increase government revenue if needed should be on the lines of bringing brake fluid, coolants, and synthetic lubricants under of licensing arrangement, according to the first official.
“They should eliminate product adulteration, grey routes of importation, unauthorized repacking to increase sales commission payable by the existing players based on actual sales and encourage more local manufacturing by widening the duty gap from 7 per cent to previous 13per cent so that it will create economic value. This duty gap is one of the lowest when compared with other manufacturing companies in Sri Lanka.” He said that existing local lubricant manufacturers to explore more export markets out of Sri-Lanka such as Chevron, IOC and Laugfs do export products should be encouraged. -(DEC)