Caltex ready for oil exploration, rejects monopoly fears

Competitors in the lubricant business grumble about the monopoly control that multinational Caltex has in this market but Kishu Gomes, Chief Executive Officer of Caltex Lubricant Lanka isn’t too worried.

"It's nobody's problem but their own," he said in an interview with The Sunday Times. "All of our competitors put together have about 50 products. We have about 230 products in our product portfolio. We have the people, we have the right technology, investors, brand respect and the right strategy to manage the business. Some companies might be expecting the government or some invisible force to gift them profits but it doesn't happen. In what country are profits gifted? Nowhere."

Gomes, in a wide ranging interview that dealt with overseas markets, oil exploration and the politics of planning Sri Lanka, explained that Caltex had a monopoly from 1994 to 1998 on the lubricant market.

"In 1994, there was a transparent process for prospective investors to bid. There were 27 companies that applied. That was a time when nobody wanted to make investments in Sri Lanka because nothing was right. But we took a bold decision and entered the market.

Part of the deal was four years of monopoly for anybody who was keen to enter the market. In 1998, the government started the process to further open up the market, called for tenders. Since 1998, the market has been competitive. As far as we are concerned, we do not have a single undue advantage or any special considerations given by the government."

"I don't know what monopoly these guys are talking about but I can understand their frustration. When the government opened the market, they had the right to enter but they found that volumes were not coming in," Gomes said. He highlighted the fact that other multinationals are not complaining. "They have been here since 1998. Indian Oil Company (IOC) entered the market about four years ago. The multinationals put together have about 5% market share still. IOC has 12% market share so IOC is not complaining. They have strategies that appeal to a particular segment which is why they have outperformed other competitors."
Potential

According to Gomes, the oil market in Sri Lanka has a market dynamic which will continue to rise, in part about 7-10%. Given the right investment climate in the country, the industry has potential to grow at a much higher rate.

"The politicians and president and the opposition leader were talking about achieving 8-10% GDP growth. If you want to grow the GDP, you have to grow the energy sector by double that amount which is what we have seen in the world so far." If the economy is to grow, the full energy demand in Sri Lanka has to be supplied. "In the petroleum industry and the broader energy sector, only 60% of energy demand is met in Sri Lanka, so we have to find ways to clear that gap.”

"Looking at the short term, a five year horizon, we have to fill that energy gap mainly with thermal power which is the most practical way of doing it. Hydro is a small project in relative terms. Those can be tapped and it should be done as well but we need thermal power to achieve 100% demand.

The question is, can we afford thermal power. Thermal power is very costly and we have to find the money and provide that service to investors and to the entire country. Energy is all about efficiency. So therefore, there is tremendous growth and there has to be the right focus on the energy sector if we are serious about growing the economy."

Gomes explained that from a practical perspective, the petroleum industry has to be well managed with the right strategies and models. "What is the right model? Are we going to depend on crude or a combination of crude and finished product or just finished product? Attention should be given to the right model." The country has to provide the right strategy to investors and ensure that productivity in all sectors is achieved.

"It's pathetic some of the facilities available to people in Sri Lanka. Some farmers have small solar power projects. If they have electricity, they can be more efficient and produce at a lower cost. There is so much that has to be done."

Caltex is predominantly focused on the lubricant business and is hoping to concentrate more on exports. Gomes said they entered Bangladesh late last year and the strategy is 'working beautifully.' He hopes to keep their targets in Bangladesh, being a large market. "We are optimistic about opportunities there, being a market that is three times larger than Sri Lanka." Caltex has also entered Maldives, supplying lubricants.

"It's a small country but they want to have an international airport, build more resorts, etc… They are earning enough to have a good quality of life."

The company has plans to get into the aviation business. "Right now in the aviation business, we are providing the technical expertise to the corporations. We are the technical service providers for the aviation business in Sri Lanka. We sell aviation fuel and have about 10% market share.

We are keen to see what other opportunities may emerge."

Caltex is hoping to 'have a go at it when the government decides to privatize' the aviation industry. "Every political party that comes to power keeps changing their plans. Given the fact that none of the government organizations is marking profits, the only way forward is getting the people with the right expertise to manage these areas. Politicians are not convinced that it's the right thing to do although the policy makers feel otherwise."

Gomes added that oil exploration in Sri Lanka is one area the company is taking a very serious look at.

"I got a team down a couple of years ago. We studied the survey results made available to prospective investors when we had just discovered the Mannar Basin. Between Colombo and Bentota, there is another area. So, there is a lot of potential and there is no better time than now to explore. The government has been sitting on it for some time but in May, they will call for tenders."