Litro Gas Lanka Ltd recently announced the price hike of a Litro gas cylinder (12.5Kg) by Rs.245/-, following approval from the Consumer Affairs Authority (CAA). The price increasewas a necessityand a long overdue step that the company was compelled to take, owing to the volatile nature of the industry prices which is largely determined by two key variables, namely; the Saudi Armco Contract Price (CP) (announced on a monthly basis) as well as the country’s currency exchange rate. World gas prices went down by US$ 41.5 (approximately to 8%) during March 2018 and rose againmarginally by US$2 in April 2018. However, gas prices recorded a drastic increase of US$32 in May 2018. Experts predict that the May price hike signals a potential trend of continuouslyhigh prices.  In addition to this,the long-term volatility of the world prices combined with the fact that the Sri Lankan LPG companies were unable to implement a reciprocal price increase resulted in the requisite price increase of Rs 245/= per cylinder. 

In 2012, CP decreased by US $ 570.00, creating an opportune situation for LPG industry players. Litro Gastook the step to pass on this benefit to consumers by reducing the price of a 12.5kg refill cylinder price by total of Rs.1,075/=(from October 2014 to November 2016)which was a 55 %reduction. Hence, consumers enjoyed the benefits of the price reduction for two long years. However, from 2016 to 2017 the CP price increased by 42 % and the company was unable to concurrentlyincrease the price apart from a nominal increase of Rs 110/= per cylinder. World Gas prices have been on a steady rise from October 2016.This resulted innegatively affecting the company’s ability to operate as a profitable state-owned company to contribute to the country’s economy. 

Based on the Litro Gas price applicationmade available to theCAA in February 2017, in-line with the existing formula, the required price increase was Rs. 219/=. At the time, CAA allowed companies to increase the price of 12.5kg gas cylinder by Rs 110/= which only came into effect on 26th September 2017. As a result of not being able to introduce the correct price adjustment, Litro Gas ended the financial year by recording a loss ofapproximatelyRs 1.7 billionin the LPG packed segment. The nominal increase of Rs 110/= could not meet the required price increase given the length of time that the industry was compelled to endure the rise of world prices.

Since October 2017 until February 2018, the average CP hovered around $ 564.00. Litro Gas took the initiative to submit a request for gas price increase to counter the difference based on the existing price formula calculated with ‘Import Data’from November to December 2017. The company forwarded a further request based on CP and import data from January to February 2018. Following thorough consideration by the CAA as well as the cabinet appointed committee for Cost-of-Living, the company received approval for an increase of Rs 245/=. However, this increase falls short of the requested increase of Rs 285/= based on the existing price formula. 

 
“We have well-envisioned plans to expand our operations and increase profitability not only to maintain the profitability of the company but also to enhance our contribution to the country’s economy. As such, we will need to adopt a fair price formula to ensure the long-term stability of the company and simultaneously transfer any benefits of world gas price reductions to consumers in a timely manner. We are in constant dialogue with the Consumer Affairs Authority (CAA), Ministry of Public Enterprises as well as the Treasury to adopt a well-defined strategy to successfully manage the current situation,” commented Mr. Muditha Peiris, Managing Director- Litro Gas Lanka Limited/ Litro GasTerminal Lanka Limited. 

Litro Gas is one of the biggest state entities that contribute to the national economy. Litro Gas contributed a hefty sum of Rs. 8.43 billion to the treasury last year alone. Apart from the sum invested in business expansion, the company’s profits are made available for nation building efforts.

The highest ever retail price for 12.5kg refill cylinder was recorded from January 2013 to October 2014 at Rs. 2,396.00. The current price of a 12.5kg refill cylinder is Rs.1,676.00 which is still less than Rs. 720.00 when compared to the highest ever retail price. 

 
‘The most recent price increase of US$32 in May 2018 indicates the volatility of the world LP Gas prices.  Hence, a long term solution is required to adjust the local prices in line with the fluctuations in order to maintain the operational stability of LP Gas companies. This further calls for a fair increase of gas prices as well as a feasible future strategy to decide gasprices such as the industry based Price formula which has been proposed by the industry”, says Mr. Chaminda Ediriwickrama, Director- Sales & Marketing/Corporate Affairs- Litro Gas Lanka Limited.

The gas price revision was a critical necessity given the above facts and further measures are needed to maintain the profitability of LPG companies in Sri Lanka while remaining fair to the consumers.