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Lankaeverything.com: Sri Lanka’s Shell unit losses mount

LBO 14-05-2007

Anglo-Dutch gas firm Shell is in “serious dialogue” with the Sri Lankan government after losses ballooned to millions of dollars as authorities resist calls for “sustainable” price increase, officials said.

Sri Lanka’s biggest gas supplier is unable to wipe the red ink off its books as cooking gas prices are currently fixed at 960 rupees (8.89 dollars) for a 12.5 kilo cylinder in line with the government’s price control mechanism.

“Since the price control regime was introduced in 2003, we have lost 767 million rupees (7.6 million dollars) to date,” Shell’s Sri Lankan country manager, Hassan Madani told reporters.

Despite an agreement in place that allows bi-monthly price revisions, the government recently allowed Shell to raise retail prices by four-percent to 998 rupees ( 9.24 dollars) for a each domestic gas cylinder from May 26.

Surging crude oil prices have pushed world gas prices up by 109 percent to 732 dollars per metric tonne in January since 2003, Shell said though local retail prices rose only 58 percent to 960 rupees in the same period.

Madani says the price hike is overdue by 16 months and is not related to the costs incurred when Tamil Tigers bombed its storage depots last month damaging firefighting equipment and disrupting supplies for 10 days.

“We actually asked for a 1,121 rupee (10.30 dollar) increase, which is just enough to meet our costs, but got approval for 998 rupees,” Madani said.

The company says it loses nearly three million rupees (28,000 dollars) each day, for selling gas at government controlled rates.

“We are presently in negative equity and our share capital has been wiped out…it is not sustainable for us to operate under these circumstances. It is a very dangerous situation for a company to be in,” warned Madani.

“We are in serious dialogue with the government now to find an early situation for us to operate as a viable business entity here,” he said but declined to say what action the company would take if Colombo continued to ignore its pleas.

Sri Lanka consumes around 160,000 metric tonnes of gas each year, of which around 70 percent is used for household cooking.

However, gas penetration among households still stands at a low 30 percent – mostly limited to high income earners – with low income groups using firewood to cook meals.

Amidst these constraints, Sri Lanka’s demand for gas grows at six percent each year, with Shell commanding 86 percent and the local privately-held Laugfs Gas, 14 percent.

Shell, which acquired a 51 percent stake in the state-owned Colombo Gas Company when it was privatised in 1995 for 37 million dollars, is still partially owned by the government.

http://www.lankaeverything.com/vinews/business/20070514013630.php

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