Red Flag

The woes the Indian state oil giant IOC’s Sri Lankan unit continues, as the firm took an unprecedented hit on its accounts to provision off a disputed subsidy due from the government. Lanka IOC’s profits for the 9-months ended December 2005 slipped deep into red after the company made a provision of Rs. 7 billion against a subsidy it is claiming for selling fuel at controlled prices.

The petroleum retailer is now reporting a loss of Rs. 7.03 billion for the 9-months ended December 2005 and a loss of Rs. 7.2 billion for the December quarter alone.

The company says the provision does not indicate that it has given up on the subsidy, though the chairman of Public Enterprise Reform Commission - Sri Lanka’s privatization agency – has forwarded a legal opinion disputing the validity of LIOC’s subsidy claims.

The Company is contesting this position, LIOC said in a note to its accounts.

However in order to give a true and fair view of the financial position of the Company, the Board of Directors have decided to make a full provision (SLR 7,034 million) against the subsidy receivable from GoSL (Government of Sri Lanka).

The company also re-stated its