Unscrupulous operators in ill-regulated market biggest challenge: Kishu

This is the seventh of the interview series titled ‘Mirror Business S&P SL20 Insights’ conducted in collaboration with the Colombo Stock Exchange (CSE) as an investor relations initiative. The column encourages S&P SL20 companies to bring attention to developments in the industry, the company and discuss growth prospects. 
Following are the excerpts from an interview with Chevron Lubricants Lanka PLC Managing Director/CEO Kishu Gomes
What key milestones has the company achieved in 2016? 
The completion of 15 years of an incident-free safety record is the single biggest achievement that we feel very proud of.
While 2016 year-end performance cannot be publicly shared due to governance demands, as seen with the 3Q performance, the company has been able to grow the bottom line despite testing market conditions and uncertainties around government policies on taxes and duties. 
The most significant achievement that creates real value for the country is the export market volume growth that grew at double digit level. The expansion of retail branded channel saw many people from suburban and rural areas becoming self-employed and some of them laying the foundation to become successful entrepreneurs. 
We passed on the benefit of lower raw material prices in the global market on the back of record low prices in the global petroleum arena by way of significant price reductions to all large industrial customers including the government entities such as the CEB, Railways and SLTB and numerous incentives and free offers to customers both in local and export markets. More importantly, the contribution we made in terms of addressing a national crisis in the area of road safety, HIV and AIDS awareness can be spoken about as a value addition to the country as a leading business entity.
What does 2017 hold for the company and what do you see as potential opportunities? Could you also elaborate on a few industry-wide growth prospects going forward?
With a potential power crisis anticipated, the industry can expect a higher demand on the thermal power generation sector. If the government puts the Megalopolis project on a faster track and other proposed highways, we will see substantial growth in the construction sector. Continued growth in the vehicle population is expected to realize incremental volume in the automotive sector. As a company, we will continue to grow volume in export markets, which we believe will help the country to show economic growth. Toll blending of products for OEMs will be another area that will help us grow volume.
In your opinion, what challenges do you anticipate in the industry and how do you intend to address them? 
The biggest challenge to all players in the industry will be the growing number of unlicensed players operating in the market and those who adulterate the products of companies that have powerful brands. 
In the absence of a proper regulatory body and an effective regulation by the Petroleum Ministry and the shadow regulator, the Public Utilities Commission (PUCSL), the number of such unscrupulous operators keeps multiplying. This costs the country a substantial amount of money by way of reduced revenue of taxes, duties, licence fees and sales commissions and customers getting deceived by these illegal operations. This leads to foreign currency drain having to replace engines early as a result of shortened life due to the use of adulterated products. Already based on our estimates, 20 percent of market is illegal and adulterated, which is a serious issue that affects all stakeholders of the business. Unfortunately, the relevant stakeholders have not understood and realized the magnitude of the issue, hence the response so far has 
been poor.
Aggravating this issue, the government’s decision to further liberalize the market to entertain more players will add more complications to the industry. Reduction of the duty gap between raw materials and finished goods from 13 percent to 7 percent will discourage any new existing players to get into manufacturing in order to create real economic value for 
the country. 
As Chevron being a local manufacturer, we have a policy of buying all inputs of right quality, be it material or services to multiply the value to 
the country.
Focusing on the shareholder, what efforts and initiatives are you taking to drive shareholder value? 
Continuous operational excellence to increase productivity and efficiency, volume growth via exports and in the chosen local market segments, toll blending for OEMs, market leading dividend policy are a few areas that’ll improve the shareholder value. 
As part of a global organisation having access to global synergies that is reflected in the profitability of the business is something only Chevron Lubricants Lanka PLC can boast in the lubricant industry.
How has listing on the CSE been beneficial to your company? 
Transparency, visibility and share of voice for the value we create for all stakeholders of the business has helped us to be admired and respected as one of the top performing blue-chip companies in Sri Lanka.
Finally, what is your message to the shareholders of your company? 
Be wise in making investments and always be driven by the fundamentals of business and its strengths and capabilities rather than being driven 
by sentiments.