Govt agrees to rationalise lubricant tariffs

July 17 (LBO) – The government has agreed to amend lubricant tariffs, narrowing the gap between lube imports and raw materials like base oil, to spur competition in the sector.

New investors will also be allowed to blend lubricants locally, though the small size of the local lube market is widely expected to support just one more blending plant.

The local lube market estimated at 45,000 kilo litres (283 kilo barrels) and valued at around six billion rupees is growing at 10 percent each year.

Apart from Caltex, the market is split between Lanka IOC with about 13 percent, Servo, Mobil, Valvoline, British Petroleum/Castrol and Shell.

Currently, imported lubricants are taxed at 28 percent, while imports of base oil used to blend lubricants locally are taxed at 15 percent and other additives at 2.5 percent.

In effect, the price difference between imported finished products and raw materials is about 15 percent.

“The government took the decision to rationalise the tax structure for lubricants, while recognising local value addition in blending. This decision was approved by Cabinet last week,” Mrs. Kanthi Wijetunga, Additional Secretary, Ministry of Petroleum, told LBO on Monday.

Suggestions from industry are to trim the tax difference between imported finished products and raw materials to 10 percent, through a surcharge or added tax on base oil, so imports are competitive.

“We are still studying the tax structure and hope to make a decision on how to implement it in a few weeks,” Wijetunga said.

The market is currently dominated by Caltex Lanka Lubricants – the local arm of Chevron Texaco that holds 70 to 80 percent of Sri Lanka’s six billion rupee lube market.

Caltex held a ten year monopoly on local blending of lubricants and exclusive distribution in state owned fuel sheds, which ended in 2004, to allow new entrants.

The firm currently runs the island’s sole lubricant blending plant exporting around 10 percent of its products to Maldives, Reunion, Mauritius, Bangladesh and India

Last week, the government also allowed amendments to the Ceylon Petroleum Corporation Act, allowing the Ministry of Petroleum to issue licences for new lubricant players.

On Sunday, Sri Lanka’s privatisation arm the Public Enterprise Reform Commission invited new lubricant players to invest, with interest from some countries.