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Shell gas curtails supplies to Sri Lankan market
10 Jan, 2006 00:00:00
Shell Gas Lanka Ltd Tuesday announced it will reduce supplies because the government did not allow them to increase retail prices to offset escalating production costs amid losses that amounted to over Rs. 790 million.
Shell Gas Lanka Ltd Tuesday announced it will reduce supplies because the government did not allow them to increase retail prices to offset escalating production costs amid losses that amounted to over Rs. 790 million.
"We reluctantly and regretfully have decided to curtail supply of domestic gas cylinders to mitigate mounting losses," Shell said in a statement.

A unit of Royal/Dutch Shell Group, Shell Gas is Sri Lanka's largest liquid petroleum (LP) gas supplier.

Shell says it is losing money, as current retail prices are fixed at Rs. 850 per 12.5 kilo cylinder in line with a price control mechanism decided by the government, but it must be sold at Rs. 1,050, for them to break-even.

Surging crude oil prices have pushed world LP gas prices to US$ 582 per metric tonne in January, which is five-percent over the corresponding period in 2005.

Prices of imported gas are forecasted to exceed US$ 600 per metric tonne in February, Shell said.

Local gas prices are regulated by the government's Consumer Affairs Authority (CAA) and revised according to a formula based on international prices.

The consumer watchdog has repeatedly turned down industry requests in order to shield local consumers.

Prices were last revised in November after Shell and its rival Laugfs Gas secured a court order, to resist CAA's decision.

The CAA has informed Shell today of their "inability to decide on the matter (on a price hike) and asked for an indefinite period of time to consider the matter."

Sri Lanka consumes around 160,000 metric tones of LPG annually, of which around 70 percent is used for household cooking.

However, Shell says LPG penetration among households still stands at a low 30 percent mostly limited to high income earners with low income groups using firewood to cook meals.

Despite this, the island's LP gas market grows at an average of six-percent, with Shell commanding 86 percent and Laugfs 14 percent.

Shell, which acquired a 51 percent stake in Colombo Gas Company when it was privatised in 1995 for US$ 37 million, is still partially government owned and does not make its detailed accounts available to the public.

-LBO Newsdesk: LBOEmail@vanguardlk.com

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