More to make fuelling merrier

• Govt. opens up for fuel retail market for three additional global players
• China’s Sinopec, US-based RM Parks in partnership with UK’s Shell and Australia’s United Petroleum to get 20 year licence to import, store, distribute and sell petroleum products
• Trio to be allocated 200 fuel stations each countrywide
• Cabinet originally decided further liberalisation in June last year when country faced its worst energy crisis
• New entrants entering SL on the back of shrinking market
• In 2022 diesel sales declined by 7.5%; petrol by 11.2% though cost wise, fuel imports rose 31% to $ 4.9 billion
• Amidst dominant CPC’s crisis, Lanka IOC sees revenue soar to a record Rs. 213 b in FY23 first nine months up from Rs. 60.5 b 
• year ago; Pre-tax profit was Rs. 36 b as against Rs. 1.65 b last year

The Cabinet of Ministers yesterday approved a strategic move to open up the fuel retailing market further with the grant of a 20 year licence to three more global players from China, the US and Australia.

Power and Energy Minister Kanchana Wijesekera took to Twitter yesterday to announce the Cabinet decision. He said approval was granted to award licences to China’s Sinopec, Australia’s United Petroleum, Australia and US-based RM Parks in collaboration with UK’s Shell PLC to enter the fuel retail market in Sri Lanka.

He said that the Energy Committee and relevant other procurement committees had given their approval and recommendations.

“The 3 companies will be allocated 150 Dealer operated fuel stations each which are currently operated by CPC. They will be granted a license to operate for 20 years to import, store, distribute and sell petroleum products in Sri Lanka. A further 50 fuel stations at new locations will be established by each selected company,” Minister Wijesekera said in a Tweet.

At present State-owned Ceylon Petroleum Corporation and Lanka IOC PLC are the two licenced operators. Of the 600 outlets for the three new players, 450 would be from CPC- operated base. LIOC has a network of 213 retail outlets serving 12% of the country’s retail fuel market. It will be adding 50 more outlets starting this year.

Refining operations are currently confined to CPC whilst LIOC also has interests in storage. Separately the Government is negotiating for a refinery in Hambantota by Sinopec, the world’s largest oil refining, gas and petrochemical conglomerate, headquartered in Beijing.

United Petroleum is an independent, 100% Australian owned fuel and convenience company with around 500 sites nationally, offering customers premium quality fuels at competitive prices, Australia-wide. The US based RM Parks has been in the fuel business for more than 50 years. It services over 300 branded and unbranded locations.

The Cabinet on 27 June last year, first approved in principle to open up the retail market. The decision came amidst the worst ever fuel crisis in the country and the rationale was new players will be required to import fuel and sell without foreign exchange from local banks.

At that that time the Minister Wijesekera said CPC will remain as service provider for logistics, storage, and distribution, and will charge a service fee from the companies (see https://www.ft.lk/front-page/Cabinet-nod-to-liberalise-petroleum-industry/44-736840).  However as per yesterday’s tweet import and storage and distribution rights have been given to the new players.

Further liberalisation comes hot on the heels of the worst year for the fuel industry in 2022. Diesel sales declined by 7.5% to 1.82 million tons in 2022 and petrol sales by 11.2% to 1.17 million tons. Crude oil imports declined by 45% to 649,000 tons. Other petroleum imports declined by 14% to 3.9 million tons.

However cost wise, fuel imports rose by 31% to $ 4.9 billion in 2022. Of that refined petroleum imports rose by 42.5% to $ 4 billion, and coal by 31% to $ 365 million. Crude oil imports were down by 22.6% to $ 483 million.

LIOC on its part also owns 49% stake in Trinco Petroleum Terminals Ltd., and 33.33% in Ceylon Petroleum Storage Terminals Ltd.

In FY21, LIOC signed a long pending Trincomalee Lease deed and Modalities agreement with Government and CPC, which LIOC described as a new milestone in SL-India economic and energy partnership.

It also executed a 50 year lease agreement for 14 tanks in the Lower Tank Farm (LTF) and formed a joint venture company, Trinco Petroleum Terminalling Ltd., with CPC owning 51% and LIOC holding 49% for development and utilisation of 61 Tanks at Upper Tanks Farm.

In the financial year ended 31 March 2022, LIOC achieved its highest ever Profit after tax of Rs. 4.8 billion. Revenue rose to Rs. 90 billion in FY21 up from Rs. 66.7 billion in the previous but lower than the record Rs. 91.3 billion in FY18. However in the first nine of the current FY23, LIOC revenue has soared to a record Rs. 213 billion up from Rs. 60.5 billion a year ago. Pre-tax profit was Rs. 36 billion as against Rs. 1.6 billion in the first nine months of FY22.