Cooking gas distributors warn of major supply disruptions
„Urge government to increase channel margin to 12% „Say their financial obligations to banks top Rs.650mn
The LP gas distributors of state-run Litro Gas yesterday called for an immediate increase of their channel margin to 12 percent, from the existing 7.5 percent, to avert a supply disruption across the country.
The distributors said they were forced to scale down the operations due to the increasing financial obligations to banks, which have reached to a staggering Rs.650 million, excluding the interest payments, driven by higher fuel prices, vehicle spare parts and labour costs.
Calling an urgent press conference in Colombo yesterday, LP Gas Distributors’ Association President Sathyendra Wijayapura along with the 35 member distributors, who are responsible for distributing LP gas for 4.25 million households through their 8000 dealers, warned that Sri Lanka will face an imminent crisis in LP gas distribution that could have a negative impact across various sectors of the economy.
Wijayapura said the key issue the distributors are facing is the significant increase in transport and related overheads, due to the increase in the price of diesel to Rs.123.
The increase in vehicle spare parts, ranging from tyres to oils and high cost of human capital, which requires regular training for specialised jobs, have also become additional burdens.
“We have borrowed from various financial intuitions, invested heavily and overcome numerous challenges with the greatest difficulty to make sure that we have safely and efficiently made all our deliveries 365 days of the year for several years.
However, this latest rounds of financial burdens are impossible to bear and it would mean that we could have to scale down our deliveries so that we can achieve a minimum profit to sustain our businesses.
Such a scaling down would have huge ramifications on the domestic and industrial front and would trigger an economic downturn in the country, which is something we have always tried to avoid but would unfortunately happen unless the relevant authorities take immediate remedial actions,” he elaborated.
Wijayapura pointed out that the banks have become worried that the LP gas distributors would be unable to pay back the borrowings as the distribution business has become increasingly unprofitable.
“The banks are calling us every morning and asking us how we are going to meet our obligations. On top of that, when the overdraft facilities are utilised for a long time, the banks send letters. We have started receiving these letters. At least every distributor has an overdraft of Rs.20 million,” he said.
The distributors purchase LP gas from Litro on cash and supply to dealers and various commercial buyers, such as hotels, on credit. However, Wijayapura said that it takes from three days to three months to collect the payments from dealers and commercial buyers.
The LP gas distributors urged the government to increase the channel margin to 12 percent, which had not been reviewed since 2007, with 7.5 percent for distributors and 4.5 percent for dealers.
Wijayapura also requested the government to increase the transport margin to a minimum of Rs.7 per km within Colombo and an appropriate increment for all other districts.
He acknowledged that this increment would lead to about Rs.75 cost increase per cylinder. However, he pointed out that the part of the cost could be retained by Litro Gas rather than passing the full cost increase to the consumer.
In addition, the associations asked for a representation of a nominated member of the association to the Pricing Committee of Consumer Affairs Authority (CAA) and for eligibility to the low interest loan scheme as well as subsidised truck availability.
Wijayapura asserted that the LP gas distributors were forced to come to the media as the relevant authorities including Industry and Commerce Minister Rishad Bathiudeen and the CAA never responded to the organisation’s repeated request to discuss and resolve these issues.
Wijayapura further warned that the supply disruptions would create a massive impact on the day-to-day activities of the public, from the Montessori toddler to office worker and pointed out that the difficulty in quick swapping to alternative cooking methods will aggravate the agony.
He noted that the apparel industry, fruit processing industry, steel industry, poultry industry, plastic industry and tourism industry would be adversely impacted by the supply disruptions.
Speaking of the impact on the tourism industry, he warned that there would be a large impact on the supply of food to guests by hotels and restaurants leading to cancellation of bookings and adverse publicity to the country, leaving long-term consequences.
Commenting on a long-term solution for the industry issues, he proposed that the government needs to review and update the LPG pricing formula with the inclusion of cost of distributors and dealers of LP gas.
According to the LP Gas Distributors’ Association, Litro Gas has a 73 percent market share in the LPG industry servicing 4.3 million households in the country.