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Govt. proposes merger of LAUGFS and Litro to stabilise LP gas price
View(s):The Government plans to merge LAUGFS Gas and the state-owned Litro Gas bringing the two-LP gas importing and distributing enterprises under one banner as a Public-Private Partnership (PPP) initiative.
A Cabinet paper submitted jointly by the Finance and Trade ministries puts the blame on a large price reduction ahead of the Presidential elections in 2019 and the ongoing currency depreciation for operational losses even further forcing them to adopt a new strategy for long-term sustainability.
At present, Litro Gas Lanka Ltd has 8,000 metric tonne (MT) storage capacity at Muthurajawela gas terminal. this is sufficient only for three to four days of market requirement, whereas the LAUGFS terminal at Hambantota port has the capacity of 30,000 MT with maneuverability up to 65,000 MT.
The LAUGFS Gas stores LP gas in the Hambantota terminal and exports supplies to countries such as Bangladesh, Myanmar, the Maldives, and India.
To avoid a gas price revision in the near future, the restructuring of two enterprises and their resources is inevitable, considering the increasing trend of fuel prices. The oil prices may exceed USD 70 a barrel which is substantially higher than the past six-year average of USD 40 a barrel, the Cabinet Memorandum signed by Prime Minister Mahinda Rajapaksa and Trade Minister Bandula Gunawardena said.
Another critical reason for the urgent restructuring is that the two state banks — the Bank of Ceylon and the People’s Bank– have high debt exposure to LAUGHFS Gas of Rs 12.12 billion and Rs 10.1 billion respectively making it difficult for the banks for further financing.
If the transportation of LPG for the requirement of both companies is undertaken in one shipment to Hambantota, the total cost could be reduced by about USD 70 a MT considering the procurement cost of gas, transportation, and insurance, the Cabinet Memorandum noted.
The proposal also suggested that a joint venture could be formed by consolidating the industry with the cash balance and reserve assets of debt-free Litro Gas, even though it is a subsidiary company of state-owned Sri Lanka Insurance Company which is running at a loss.
Under the joint venture, it has been proposed that LPG can be transported to Sri Lanka on large scale amounting to 30,000 MT to Hambantota storage terminal and shared between Litro (25,000 MT) and LAUGFS (5000 MT).
The new joint venture could also procure a further 30,000-35,000 MT of LP Gas and export it to Bangladesh, India and the Maldives earning foreign exchange.
The Cabinet also recommended authorising the Treasury Secretary to direct Sri Lanka Insurance Company and Litro Gas Company Ltd to purchase equity stake of LAUGFS Gas terminal up to 40 percent and secure two positions in the Board of Directors.
It also recommended that under the joint venture, the retail price of 12.5 Kg cylinder could be fixed as Rs 1,493 (price in Colombo) by removing Port and Airport Levy on the import of LP Gas.