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Litro-LAUGFS combined Siyolit in limbo
View(s):The full functioning of Siyolit (Pvt) Ltd, the special purpose vehicle (SPV) incorporated by joining the State-run Litro Gas with the private sector LAUGFS Gas (Pvt) Ltd is still bogged down in delays, authoritative sources confirmed.
While the company stands incorporated – with a Board of Directors – and is not dissolved, it is yet to start the procurement process for LPG, while a second board meeting scheduled for Thursday was put off by its newly-appointed Chairman, Susantha Silva, with no reason given.
Litro unions have been resisting the creation of the new entity saying it was a ploy to “rescue” the debt-ridden LAUGFS, and that this will have a negative impact on the State-owned entity.
“Despite all efforts, due to the slimy work of parties with vested interests, particularly the current supplier, Litro, the process is in limbo,” said LAUGFS Chairman W K H Wegapitiya. “We are waiting till the Finance Ministry provides clarity.”
Siyolit was set up after both Litro and LAUGFS each passed resolutions approving its incorporation. It is registered with the Registrar of Companies. Its Directors include three from Litro, two from LAUGFS and Treasury representatives. An action plan and strategic plan have been drawn up. The first Board meeting was held on August 18 via Google Meet.
According to the six-month action plan drawn up till December 31, 2021, steps were to be taken for the first global tender of LPG by September 15 with a request for proposals to register suppliers. That deadline has passed. The start of supply arrangements is listed as November 30, 2021.
It was revealed at the first Board meeting that Siyolit will initially function for six months with an extension to be determined based on progress.
“The rationale behind forming a joint venture was because it was observed during this pandemic that there were a lot of disturbances to the supply chain,” Mr Wegapitiya said. “Litro has only 8,000 metric ton storage despite commanding a 75 percent market share, so it can hold inventory only for three days.”
“We have a 30,000 metric tonne storage facility in Hambantota,” he said. “When Litro brings 3,000 parcels of LPG, we can bring 30,000 or even 45,000. And while Litro’s logistics cost is US$ 104.5 per metric ton, ours is US$ 35. There is an overall benefit to the country.”
“The idea is to optimise infrastructure and source the product jointly,” he continued. “Ceylon Petroleum Corporation and Lanka IOC also have a common user facility called CPTSL. The concept is the same.”
The management contract for this project is expected to cover the common facility-sharing arrangement with LAUGFS and the terminal charge; sea transport from Hambantota to Kerawalapitiya; bottling charges, access to premises and quality assurance; profit-sharing mechanisms (the SPV is to be a non-profit entity); and distribution, with both companies agreeing to cater to local demand during a six-month period.
Litro unions are opposed to the deal. They say that the use of LAUGFS Hambantota bunkering facility will render Litro’s 8,000 metric ton Kerawalapitiya facility obsolete. It will duplicate transport charges from Colombo to Hambantota together with payment of fees to LAUGFS for using its storage. There are fears Litro will lose its profits and the private company will gain dominance.
Fuelling further confusion, a Litro official said Siyolit has been scrapped, with Litro withdrawing from the partnership. The Government had allowed Litro to pull out, claimed Janaka Pathiratne, its Director (Sales and Marketing). At a meeting held on September 24 attended by Secretary to the President, P B Jayasundera and Trade Minister Bandula Gunawardena, Litro had explained the company’s position, and said joining with LAUGFS will lead to its downfall.
It was after this meeting that Litro was allowed to withdraw its representation from the Siyolit Director Board, Mr Pathiratne said. It was then asked to submit proposals to revive LAUGFS and it gave three recommendations, including to handover the management of the private entity’s assets to Litro and for all proceeds generated from this to be used to settle LAUGFS’s loans from the Bank of Ceylon and People’s Bank.
Another alternative was for Litro to lease the LAUGFS facility in Hambantota for 10 years and, finally, to open up the LAUFGS LPG facility for sale to international investors with 51 percent of shares being held locally.