14 March 2016 10:46 am
The Chief Executive Officer of Chevron Lubricants Lanka PLC (Chevron), the leading lube manufacturer in the country, Dr. Kishu Gomes warned the move to further liberalize the market would put all operators at risk when the industry growth is insignificant.
“The market may be at risk of further fragmentation with 13 players and possibly more competing for a share of the 54 million litre market in a backdrop of sluggish industry growth,” Dr. Gomes said in his annual review of operations. Further explaining the repercussions he said the reduction in the duty gap between the imported and locally manufactured products in the industry is increasing competition untenably and would discourage new investments in lubricant manufacturing plants in Sri Lanka and result in more finished products imports.
Chevron in December 2014 commissioned its US $ 15 million state-of-the-art lube blending plant and warehouse complex in Sapugaskanda, which has the capacity of producing 45 MML per annum of finished lubricants in a single shift. Presenting the Budget 2016, the country’s Finance Minister Ravi Karunanayake said Sri Lanka’s lube market was managed by only few companies.
“Hence I propose to liberalize the lubricant market and I encourage the companies to venture into more value-added products with high investment. Further, I propose to remove lubricants from the BoI negative list,” Karunanayake said. However, according to the Public Utilities Commission (PUC)— the shadow regulator for the lube market in Sri Lanka— there are 13 authorized parties to import, export, sell, supply and distribute lubricants out of which two parties— Chevron and Lanka IOC PLC— have lube blending facilities.
Chevron leads the market with a 49.3 percent market share by end-2014, down from 52.6 percent a year ago, while Lanka IOC PLC and state-owned Ceylon Petroleum Corporation had a share of 12.6 percent and 12 percent, respectively. For the year ended December 31, 2015, Chevron’s profit grew 12 percent to Rs.3.1 billion but the revenue remained virtually flat at Rs.11.6 billion due to the drop in institutional sales.
Bulk institutional sales were low due to change of power generation mix in to less lubricant intensive coal power and hydropower as opposed to lubricant intensive thermal power. “Further, the construction industry, another key source of revenue for the company, received a setback due to the phasing out of many large-scale public infrastructure projects pending reassessment,” Dr. Gomes explained. Meanwhile, the company strengthened its export markets of Bangladesh and the Maldives, particularly in the power generation sector. The drop in raw material prices, despite not to the same proportion to the crude oil prices has enabled Chevron in 2015 to counter the aggressive price discounting by the competitors and compete effectively.