Laugfs to restart supply amidst dollar crisis but when?

0
178

A profitable business operates out of Hambantota Port where vessels flying the Sri Lankan flag, like the Gas Challenger, Gas Success, and Gas Courage owned by Laugfs Maritime supplies gas to regional countries, including Bangladesh, but no gas is sent to the domestic market due to the dollar crisis.

Gas Challenger (IMO: 9116228) is an LPG Tanker built in 1995 (27 years ago) and currently sailing under the Sri Lankan flag. It has a carrying capacity of 6,571 cubic metres of liquid gas and a current draught of 4.6 metres. Her overall length (LOA) is 119 metres, and she is 18.8 metres wide. It is currently en route to the port of Sohar, Oman, to load gas for delivery to Bangladesh.

Gas Success (IMO: 9148609, MMSI 417222406) is an LPG Tanker built in 1997 (25 years old) and currently sailing under the Sri Lanka flag, with a gas supply in the UAE.

The LPG Tanker Gas Courage (IMO: 9172131) is currently located in SEASIA – Gulf of Thailand. The LPG tanker was built in 1998 (24 years ago), sails under Sri Lankan flag and is registered in Colombo. The vessel Gas Courage was the first ship to be registered in Hambantota.

These three vessels have not brought business to Sri Lanka over a year. The last time one vessel carried only 800 tonnes of gas and there was empty space in the ship. Similarly the other ships had brought no business to Sri Lanka over period of months despite they are fully Sri Lankan owned ships.

According to Ceylon Today, Laugfs Gas has suspended supply to the domestic market since the end of February because banks could not to open Letters of Credit (LCs), and Laugfs and Litro stated that unless the matter is resolved, the company will continue to distribute LP gas. However, K.H. Wegapitiya, Chairman of Laugfs Gas, assured that his company was able to open LCs and will be able to distribute to the domestic market soon. People are becoming increasingly enraged as they are unable to prepare their daily meals due to a critical cooking gas shortage. Litro and Laugfs are citing a significant financial burden as a result of their inability to open LCs due to a lack of US dollars.

However, Ceylon Today learns that the three vessels owned by the Laugfs will not be supplying gas to Sri Lanka as the ships are busy elsewhere.

Laugfs transshipment takes place at Hambantota port’s Transshipment Terminal Complex, in the Laugfs Terminals Ltd. As the dollar crisis worsened, the loading of LP Gas has always been shipped from this point to various other countries, with the exception of Sri Lanka.

LP gas re-exported

The tanks are under the control of the Board of Investment (BOI), and Laugfs can bring cargo to Hambantota and re-export it to any country without paying any taxes because it is a BOI project, so there is no need to supply the domestic market. The underlying issue is that in order to supply to the local market, the LCs must be a supporting document. Currently, the supply is out of control because banks will only pay in Sri Lankan rupees, forcing them out of business in no time.

The tank farm in Hambantota is currently empty, and if Sri Lanka so desires, Laugfs can bring gas for the domestic market. Laugfs, on the other hand, brought a mid-size gas carrier to fill the Hambantota tanks last year.

Laugfs vessel Gas Challenger receives gas and reloads it from Hambantota Port before returning to Bangladesh where it has become profitable. 

The Consumer Affairs Authority (CAA) in Sri Lanka previously stated that gas cylinder supply should be limited to Rs 1,500 and that normal Laugfs cylinders were purchased from other countries for USD 10 each which was then only Rs 200 per dollar, so as the price has increased and they were unable to sell cylinders as well as gas, Laugfs lost Rs 5 to 6 billion, causing supply to come to halt. The company is re-exporting gas to other countries including Bangladesh where it is the fourth largest gas company. Laugfs said they cannot conduct business in Sri Lanka because all payments must be made in Sri Lankan rupees.

Laugh maritime operates three ships on the orders of its top management. Currently, the company has decided to offer services on a charter basis, with three ships involved in loading and unloading gas for other countries.

Laugfs vessels are primarily chartered to Oman, India, Malaysia, Singapore Indonesia, Colombo, and Hambantota, and today they busy elsewhere, and occasionally voyages from Hambantota to Colombo have turned out without cargo, causing severe losses to the company.

Laugfs Maritime Services Pvt Ltd would own, operate, hire, and charter various types and sizes of ships, including Liquid Petroleum Gas (LPG) shipping vessels and other types of vessels capable of transporting various energy products.

Laugfs Gas is the second largest business entity in Sri Lanka’s LP gas market, with Litro Gas, which was previously Shell Gas Ltd; later acquired by the Government, being the largest.

Laugfs Gas Bangladesh is one of Bangladesh’s largest downstream LPG players, importing, storing, bottling, and distributing over 60,000 MT of LPG each year. Laugfs LPG vessel fleet operates its maritime LPG logistics arm, and has continued to invest in strengthening the LPG infrastructure by commissioning from the LPG Transshipment Terminal in Hambantota.

Laugfs Gas PLC was formed in 2001 and the commercialisation of the Laugfs Terminals was in 2019/20.

The numbers

In the Laugfs Gas PLC Annual Report 2020/21 they noted that Sri Lanka coped with the Easter Sunday terror attacks with the onset of the pandemic towards mid-March. Fast forward a year and we see the scarring left by the pandemic on the economy and the lives of people. 2020 saw world output contracting by 3.3 per cent with the Sri Lankan economy following suit with a contraction of 3.6 per cent. The Government adopted a supporting monetary policy stance reducing policy rates sharply and extending moratoria to a wide range of businesses that were affected by the pandemic through the banks. Sri Lanka’s economic stress worsened during the year and wide-ranging import restrictions were imposed to defend the currency and the balance of payments. While the currency depreciation was held at 2.5 per cent during 2020, it declined by 6.5 per cent in the first quarter of 2021 exacerbating stresses on margins for importers.

Sri Lanka is forecast to grow by four per cent in 2021 as vaccines are rolled out and the economic activity stabilises. Encouragingly Bangladesh economic growth remained positive at 3.8 per cent and is expected to regain growth momentum with a forecast growth rate of five per cent for 2021. The opportunities for growth are attractive although the influx of new entrants to the market poses a significant challenge.

Propane and butane prices declined sharply in April 2020 as countries across the world imposed mobility restrictions and demand dipped sharply. However, this respite was short lived as prices moved up from May 2020 onwards, reaching pre-pandemic levels by January 2021. Margins which reached comfortable levels for a brief period during the year, narrowing from the third quarter onwards as prices climbed with profitability of the group following a similar path.

The annual report of last year further underlined that Laugfs Group recorded a loss of Rs. 658 million compared with a loss of Rs 1,690 million in the previous year. The loss is due to the Sri Lankan operations stemming from the price regulations in place which have not been revised since October 2019 when LPG prices were much lower. Additionally, the impact of the exchange rate depreciation is also significant, adding to the costs. Recent import restrictions also have added extra costs for importers and while tariffs changes exerted further pressure.

Also downstream operations in Sri Lanka incurred heavy losses during the entire period as the CAA has not given approval for upward revision of LP gas consumer prices since October 2019 despite the operation of a pricing formula agreement entered with the CAA.

As the operations in Sri Lanka account for over 39 per cent of the Group’s revenue, this has a significant impact on the performance of the Company, it noted.

On 12 August 2021, the CAA granted permission for Laugfs to increase the price of a 12.5 kg gas cylinder by Rs 363 from Rs 1,493. Therefore, the new price of a 12.5 kg Laugfs gas cylinder is Rs 1,856. In addition, the price of a 5 kg Laugfs Gas cylinder was increased by Rs 145, raising the price of a 5 kg Laugfs Gas cylinder which was Rs 598 to Rs 743.

Hambantota terminal

In 2020, Laugfs Terminals celebrated its 100th ship call for loading LP gas at Hambantota. 

The installed cargo capacity of the Laugfs Terminal Complex is 30,000 m/t, which can turnaround three times monthly to achieve 1,000,000 m/t of LP Gas per annum as transshipment, by way of import, storage, mixing of elements of propane and butane, and exports to identified markets, the official statement said. The transshipment terminal complex obtained BOI approval with special hub-status as per the relevant Gazette Notifications and enjoys a range of statutory concessions.

In 2021, the Government was considering the feasibility of maintaining a stable price for LP gas by allowing a public and private partnership (PPP) to maintain LAUFGS terminal jointly between Laugfs and Litro for storage with the aim of reducing costs but that has not implemented yet.

It was announced that if this occurs, the transport costs of two companies could be reduced by around USD 70 per MT by using Laugfs’ Hambantota facility with a capacity of 30,000 and its other 3,000 MT terminal at Mabima. The vessel ‘Gas Puffer’ was renamed ‘Gas Challenger’ and registered under the Sri Lankan flag after an initial investment of approximately USD 6.9 million. Laugfs Maritime Services is a ship ownership and management company based in Sri Lanka that provides ship management services to its fleet in an efficient and profitable manner.

Despite having such renowned international gas distributors, Sri Lanka has reached a point where it cannot use its own products for its own people due to the crisis. Attempts to contact the Chairman or Deputy Chairman of Laugfs for comments on how we could use the vessels to bring business for Sri Lanka were futile.

By Sulochana Ramiah Mohan