Financial Times - LIOC to adapt cost driven pricing

LIOC to adapt cost driven pricing

The Lanka Indian Oil Company (LIOC) has said that the ‘transition period’ of moving away from the government subsidy to ‘cost driven pricing’ will be beneficial for the company.

K. Ramakrishnan, Managing Director LIOC told The Sunday Times FT that the company's survival in the market depends ‘solely on the Ceylon Petroleum Corporation’. “We hope that CPC will follow suit together with LIOC when we increase the petrol prices from Rs.7 a litre, because if they do not we will not survive in the market,” he said.

He said that the company has not recovered the cost of material from April to June making a gross loss of Rs.13.2 million.

“The government has abolished the subsidy and the international crude oil price had more than doubled and has a corresponding impact on LIOC’s profit margins,” he said. He added that the government has said that quantum increase in profit margins cannot be accommodated and after several rounds of negotiations has agreed to a gross profit margin of 1.5 percent instead of a five percent starting from 1st January 2004.

He said that the government has advised that the subsidy era has ceased last June. “This means that the five year initial period gets reduced to two years and six months and the government has also permitted LIOC to fix the retail selling prices based on cost plus reasonable margin and we agreed to implement cost driven pricing,” Ramakrishnan said.

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