Sri Lanka’s only glass bottle maker wants furnace oil linked to fuel pricing formula

„Says higher furnace oil prices eroding export competitiveness „Customers at home turning to cheaper alternatives due to taxes

Piramal Glass Ceylon PLC said they had been unfairly treated for years by the authorities by overcharging on furnace oil, which has led to an erosion of export competitiveness.

The company, which is a unit of India’s Piramal group, also said it is losing market share at home due to certain levies and taxes, as customers shift to cheaper alternatives.

Piramal Glass said authorities had turned a deaf ear to their numerous calls to subject furnace oil to market pricing.

Although Sri Lanka implemented a pricing formula for fuel in May 2018, it does not apply to finance oil, which is a petroleum product consisting mainly of residues from crude oil distillation.

Furnace oil is used mainly for steam boilers in power plants, aboard ships and in industrial plants, and is one of the key costs incurred by Piramal Glass.

Although the global crude oil prices have fallen from US $ 120 a barrel in 2011 to around US $ 60 a barrel, price of furnace oil has not come down accordingly.

“It is very concerning to note the mixed approaches of the authorities towards exports. Much focus is made on exports, by encouraging the business to promote their products, yet the government does not create a conducive environment for the same by creating a level-playing field.

Whilst all neighbouring countries have linked the furnace oil price to the global crude oil rates, we regret to note that we in Sri Lanka are yet to implement same,” Piramal Glass said in its 3Q19 earnings release.

Piramal Glass is Sri Lanka’s sole manufacturer of moulded glass containers for the food & beverage, pharmaceuticals, cosmetics and perfume industries. Exports account for 20 percent of the company’s sales. The total sales of the company during the quarter ended December 31, 2018 declined 1.3 percent year-onyear (YOY) to Rs.1.96 billion, but the gross profit rose by nearly 20 percent YOY supported by 5.7 percent YOY decline in cost of sales to Rs.1.55 billion.

The company reported earnings of 12 cents a share or Rs.115.3 million for the period, up 18.7 percent YOY.

Meanwhile, for the nine months ended in December 31, 2018, the company reported earnings of 16 cents a share or Rs.153.8 million, down as much as 39 percent YOY.

The company said although the December quarter had been generally a better quarter than rest of the year due to the increased demand from the festive season, the quarter under review had been somewhat lukewarm due to political instability.

Domestic sales during the period under review saw 3.0 percent YOY drop to Rs.1.23 billion.

“Food, beverage and liquor segments continued to show de-growth during the quarter as well as for the nine-month period when compared with the similar periods of the previous financial year,” the company said.

During the quarter under review, export sales remained stable at Rs.733 million as against Rs.729 million a year ago.

Meanwhile, Piramal Glass raised serious concerns about the future viability of the domestic business due to consumers shifting to cheaper and illicit products as levies and taxes have made the company’s products more expensive.

“The government’s decision to increase certain levies and taxes has impacted in the final products becoming more expensive. This has resulted in the consumer shifting towards cheaper and illicit products. This turn of events has impacted several manufacturing industries including packaging.

“Thus, we feel this decision has neither benefited the industry nor added any additional revenue to the government. If the above events continue, the fate of domestic industry would be a question mark”, the company said.

Piramal Glass Private Limited holds 56.45 percent stake in Piramal Glass Ceylon as the controlling shareholder. Employee’s Provident Fund has 9.51 percent stake in the company being the second largest shareholder.