Government proposals may lead to lubricant market fragmentation: Chevron


Mar 10, 2016 (LBO) – Chevron Lubricants Lanka, a leader in the island’s lubricant industry says the market may be at risk of further fragmentation as the government proposed to open up the lubricant market.

“We have concerns about the 2016 budget proposals in respect of the lubricant industry,” said Kishu Gomes, Chief Executive Officer of Chevron Lanka in his annual review.

“The government’s proposal to open up the lubricant market and remove lubricants from the BOI negative list will affect all existing players.” he said.

Gomes says the market may be at risk of further fragmentation with 13 players and possibly more competing for a share of the 54mn liter market in a backdrop of sluggish industry growth.

In 2015, the company recorded a drop in institutional sales from the power generation sector as the source of energy mix to the national grid varied with less lubricant intensive coal power and hydro power as opposed to lubricant intensive thermal power.

A fully functional Norochcholai power plant and the higher rainfall in hydro catchment areas led the shift towards coal and hydro power respectively.

The construction industry, another key source of revenue for the company, also received a setback due to the phasing out of many large scale public infrastructure projects pending reassessment.

Gomes said the favorable turn of events during the year was the drop in raw material prices though not to the same proportion to the crude oil prices.

“As a result, we had access to lower raw material prices which enabled us to compete effectively against the aggressive discounting to the trade, engaged in by the competition.”

He said the company was able to drive growth in the export markets of Bangladesh and the Maldives, especially in the power generation sector.

Chevron Lubricants Lanka surpassed the 3 billion rupee mark to deliver its best-ever financial performance beating previous year’s achievement of net earnings of 2.7 billion rupees.

The company was able to grow volumes in the retail front of the domestic market and overall volumes in the exports markets led by Bangladesh.

The company further said that operating costs were streamlined after commissioning of the new blending plant, whilst leveraging on operational synergies of co-locating the blending plant and warehouse at Sapugaskanda.