- Joint agreement on price formula after 2 years of negotiation
Following two years of extensive negotiations and deliberations, Litro Gas Lanka, Sri Lanka’s largest importer and supplier of liquefied petroleum gas (LPG), has been able to arrive at an agreement with the Consumer Affairs Authority (CAA) of Sri Lanka, on the LPG price.
Accordingly, the CAA announced a price revision of a domestic gas cylinder by Rs.240, effective from midnight October 4, 2019.
The revised price is effective for two months and the next price revision will be in November.
The agreement on the LPG price revision is based on a robust pricing formula, which Litro Gas Lanka has been mooting for more than two years.
Previously, in the absence of an effective and practical pricing revision mechanism, the LPG companies have been incurring substantial financial losses in tandem with the world LPG price (Contact Price (CP) by Saudi Aramco) hikes or exchange rate hikes against the Sri Lankan rupee, which are two of the most influential variables in deciding the retail price of LPG.
Similarly, the companies were not able to pass down the benefits to the end consumer, whenever the CP or other factors were reduced at times. Hence, the new agreement on the formula will greatly benefit the Sri Lankan consumer.
The new price revision mechanism, entered between the CAA and Litro Gas Lanka Limited, was a result of years of negotiations and deliberations with the participation of the Cabinet Sub-Committee on Cost of Living and Pricing Committee
appointed by the Sub-Committee.
The new price revision mechanism allows Litro Gas Lanka to revise the price of a gas cylinder based on the prevailing LPG world prices and foreign exchange rate, every two months.
Whilst the CP is low at the moment, the Saudi Aramco attack, which took place recently, is likely to trigger an upward trend, which might be reflected in the November revision.
Four key variables collectively affect the profitability of the LPG
companies of Sri Lanka.
This status quo is a unique challenge that the LPG industry faces, given that the four variables are beyond the companies’ control. The four variables include, LPG world prices, retail selling price of a cylinder in the local market, dollar fluctuation and freight and shipping cost.
Sri Lanka is now on par with most other nations and markets that have adopted pragmatic pricing formula for LPG. The new formula now guides and directs the price of LPG, an everyday need for most Sri Lankan consumers.
Litro Gas Lanka expects that the gas pricing formula, much like the fuel pricing formula in practice currently, will be strictly adhered to by all parties concerned.