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Sri Lanka CPC-GAC entry to cut bunker oil prices in Colombo
11 Mar, 2008 15:00:49
March 11, 2008 (LBO) – Sri Lanka's state-owned petroleum utility plans to tie up with global ship supplier GAC Ships to sell bunkers or ship fuel in Colombo port, its chairman Ashantha de Mel said.
The Ceylon Petroleum Corporation's plans to re-enter the bunker market will likely bring down prices in Colombo.

"We're in the process of trying to finalise our bunkering venture," de Mel said. "We called for expressions of interest and we found the best was one that GAC Ships gave. We plan to go ahead with them."

De Mel said the CPC will provide the fuel oil from its refinery in Sapugaskanda, north of Colombo, while GAC will supply the barges and do the marketing.

Furnace oil derived from refining crude at the 50,000 barrels per day refinery will be used to provide bunkers and if this supply is not enough the CPC will import bunkers.

"It depends on the time of year," de Mel said. "During certain times of the year we have a little bit of excess fuel.

"When there is rain and CEB (Ceylon Electricity Board state-owned power utility) uses less furnace oil and then we have a little surplus and we can give it as bunker fuel. When it is mostly dry the CEB uses more of the furnace oil and then we can also import it."

Bunker prices in Colombo are very high because of limited supply and the cost of shipping it from refining centres in Singapore or Dubai.

Supply of bunkers in Colombo had long been a monopoly of Lanka Marine Services, a former CPC subsidiary that was privatized and sold to conglomerate John Keells Holdings several years ago.

Even though privatisation was supposed to end the monopoly, LMS held an effective monopoly on ship fuel sales as it owns the only available shore based storage tanks.

Rival private bunker supplier Sri Lanka Shipping uses floating storage tankers while new entrant, Lanka IOC, the Sri Lankan unit of Indian Oil Corp, supplies only in the eastern port of Trincomalee where it has storage tanks.

LMS has now become a key source of profits for JKH, de Mel noted.

"If you look at the JKH balance sheet, most of the profit earned by them is from their bunkering business," he said.

"To have sold off such a profitable venture was perhaps not the best thing they could have done. This business could have been developed to a much higher degree. They could have sold more bunkers if they hade done a better job of it."

De Mel said the CPC could bring down bunker prices by keeping a lower margin and making up for the lower profit by increased volumes.

However analysts say the LMS privatization had now laid the groundwork for effective competition in Colombo in bunkering.

When bunkering was a state monopoly for decades, Sri Lanka had done little to expand aggressively into the business, which countries like Singapore had managed to do very effectively.

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