LIOC wants more!

By Sunimalee Dias

Against the backdrop of claims by the opposition that there will be price hikes in the aftermath of the local government polls, another increase is likely in petroleum products amidst losses incurred by Lanka IOC.

The company has been claiming losses amounting to Rs. 16 per litre on diesel and Rs. 6 per litre on petrol even after the latest price increases. An increase is looked forward to by about Rs. 20 per litre for petrol and Rs. 10 per litre for diesel.

LIOC Managing Director Suresh Kumar speaking to the Daily FT said that there was no great relief. "I want an increase," he asserted.

Asked whether a price hike could be held back until after the polls, he noted that while they would want to work with the Government, price increases on the other hand had been "very sharp".

Back in 2008 about April-July period diesel prices were in the range of US$ 118 per barrel but in the last two and a half to three years it had not touched such high prices. On the other hand, current prices skyrocketing to these past figures have called for a necessary correction.

With international petrol and diesel prices continuing to rise, Lanka IOC is now waiting for the Government to react accordingly with a further price increase.

Further compounding problems is the drop in sales by about 35% due to the ongoing price differences experienced in the market at present.

With diesel prices in the world market at US$ 118 per barrel and US$ 109 per barrel for petrol, excluding the premium, Kumar deduced that even if stocks were bought with duty concessions, the products would experience losses of Rs. 27 per litre in diesel and Rs. 13 per litre for petrol.

In this respect, LIOC is now demanding a further increase in prices as the global prices are on the rise and duty concessions have not been earned.

LIOC was recently granted a price increase with duty concessions by the Government on petrol and diesel effective from 10 January, after the 8 January delivery of fuel stocks to the country.

He pointed out that while the increase was nominal in terms of Rs. 5 for diesel, there was a need now to ensure that the Government increases prices on both fuel products.

Usually the price increases are higher for petrol and not so much for diesel due to the nature of the requirement of the relevant products, he explained.

The Government’s policy of including duty concessions for such products is unlikely to help the market in the future. "It will help up to a certain point and after that the price increase is inevitable," Kumar explained.

A price review is being expected by the market from the Government in a bid to ensure stability.

Kumar opined that CPC’s losses will not bode well for the market as the company needed the relevant finances to ensure the smooth functioning of the business.

"It will be difficult to sustain the losses," he said, adding that with increase in demand for petroleum products, the State-owned organisation required the relevant funds to develop its infrastructure given the growing economy, post war.

Commenting on the Government’s move to include a third player into the local market, Kumar pointed out that there was a need to see how good it would be for the market.

While noting that he was not privy to the Government decision, he said it was vital to take into consideration how this would bode for the State owned organisation and the country as a whole.

However, he observed that the entry of a third player would be good for competition.