GAS USERS SQUEEZED FOR DUOPOLY’S PROFIT

Sri Lankan homes are at the mercy of a powerful duopoly that controls the cooking gas market — Litro Gas and Laugfs.

While a homemaker in Colombo will pay Rs 1,431 for a 12.5 kilogram gas cylinder, households in Badulla, Kandy, Jaffna, Trincomallee, Galle, for example will have to fork out a lot more.

The two dominant companies Litro and Laugfs have an agreed price formula with the Consumer Affairs Authority to ensure profit margin for the sake of shareholders.

Laugfs founder and chairman W K H Wegapitya complains in the annual filing that, “Price regulation was a key factor impacting profitability as the Consumer Affairs Authority failed to implement the agreed pricing formula for the retail price of LPG cylinders.’’

Margins declined by 7% compared to 18% in financial year 15/16, Laugfs says.

The Employees Provident Fund has a 17% stake in the company.

While two companies dominate Sri Lankan lives, until 1995, a state monopoly was operating in the form of Colombo Gas Company.

Nearly 98% of Sri Lanka’s needs are imported and the two companies have seen their profit margins shrink. Both have been complaining about price regulation, rising prices in the world market, and about shrinking profit margins.

Data from S&P Global Platts in Singapore show that prices of liquified petroleum gas hit a 10-month high at US$379.50 per metric tonne, while on August 28, Saudi Aramco set its September contract prices for propane at US$480 a tonne (up US$40 from July) and butane at US$500 a tonne (up US$60 from July) a new high since March. On January 4, it was US$385 per metric tonne.

As a Board of Investment enterprise, Laugfs pays just 20% corporate tax. Many sweeteners have been granted to the company.

Laugfs Gas generated Rs 10.38 billion in revenues for the year ended March 31, 2017. Group revenue was higher. The company booked a group loss of Rs 627 million on revenue of Rs 18.06 billion.

Laugfs says it has more than 50,000 customers, 30 distributors and 5,000 dealers.

Litro Gas claims to have a 72% market share it reached in 2015.