Following a 22-day operation to end gas cylinder queues and implement a new price formula for Liquefied Petroleum (LP) Gas, Litro Gas Lanka made the decision to lower the price of LP Gas as the first step of their programme.
After failing to meet market demand for LP Gas for at least five months, Litro was finally able to quickly turn the situation around and make the cylinders freely available throughout the island. President Ranil Wickremesinghe’s suggestion led to Litro recently adopting a price formula.
When queried why they did not implement a price formula sooner, a Litro Gas spokesman said that despite making multiple requests, the Government was slow to respond.
According to the price formula, there will be a price revision every fifth of the month; whether a raise or a decrease of the LP Gas cylinder. He said if the price formula had been accepted when it was first offered, the company would not have suffered such a large loss.
“At the very least, we are now following the price formula. We’ll have to wait and see what happens next. It is always beneficial to have a price formula since on one hand, customers will be kept informed and on the other hand, the company will avoid a major economic disaster,” he said.
Meanwhile, Litro chairman Muditha Peiris said they want to release about 80,000 gas cylinders onto the market daily.
Even less gas cylinders were provided to household users because it was also given to locations and enterprises considered essential. More than 5,000,000 people use Litro LP Gas.
During the gas crisis, Litro distributed more than 5,000,000 cylinders with storage capacities of 12.5 kg, 5 kg, 2.3 kg, and 37.5 kg. All of these cylinders, either 4,500,000 or 4,000,000, were empty. Although there was a need for 4,500,000, fewer than 5,000,000 customers got their gas, which caused the crisis to worsen. In response, people staged protests by hoarding gas cylinders and blocking highways and demanding that gas be given.
The LP gas crisis
The contract for importing LP Gas from Litro expired on 28 February 2022, even though the supply of LP Gas came to an end in March 2022. In January, the company was preparing to announce a tender for a new supplier. The supplier informed the company that a comprehensive letter of credit was required there.
The Central Bank said on 8 April that it would temporarily halt paying loan payments due to the Government’s dollar shortage at the time. As a result, neither public nor private banks would issue letters of credit, which made it difficult for the enterprises to raise money moving forward. As a result, starting in the first week of April, fuel purchases from Litro Gas were no longer allowed due to the gas shortage.
Oman Trading Gas Company had been the supplier up until that time, and according to the collective of workers and members of civil society known as Litro Surakime Jathika Ekamuthuwa (LSJE) or Litro Surakeeme National Unity, the prior chairman did not even try to negotiate with them.
The cancellation of the gas contract with Oman Trading and the currency issue, according to the chairman of Litro Gas Lanka, caused the situation to gradually get worse.
“The company is requesting a long-term letter of credit due to the ongoing dollar crisis. The corporation had started soliciting bids to select a new supplier. The tender was open for one year. Thus, Litro Company was able to begin a protracted letter of credit. Because the economic crisis was still in its early stages, Litro and the Central Bank had financial stability,” he said.
But discussions had already started, and the Cabinet was updated every week on their progress in finding the money and getting the new tender approved. When all the state-run banks, including the Central Bank, say that they cannot issue a long-term letter of credit, the Cabinet of Ministers notifies the corporation that it cannot act.
The company had an annual profit of Rs 6 billion in 2019, but by 2021/22 the company was losing money as a result of poor management and a lack of price revisions.
The financial crisis
When the previous administration left office, Litro had Rs 21 billion in deposits and had developed into an institution that paid Rs 11 billion in dividends to the Treasury. However, the institution’s debt rose to Rs 11 billion when the current Chairman took control in June 2022.
According to Financial Director for Litro Gas Lakmali C. Hapuarachchi, the primary cause of the financial disaster was the failure to increase gas prices concurrently with increases in market prices worldwide. “Despite an increase in price on the international market from October 2019 to August 2021, the Government did not approve an increase in the price of LP gas on the domestic market. Even then, there was a mechanism for determining gas prices, but it was ineffective,” he claimed.
In addition, she said that if there is a loss from the country’s LP gas import, the company would continue to suffer losses and cannot anticipate a profit. According to her, even banks were hesitant to lend money since Litro is unable to pay back loans because the money it makes from selling gas is only enough to pay for one or two gas shipments.
“By 2021, Litro’s Rs. 10.4 billion in cash reserves had decreased to minus Rs 100 million. As a result, there were not enough rupees in the institution. It is a business that reported a Rs 6 billion yearly profit in 2019. The company was operating at a loss due to bad management and a lack of pricing revision. Along with all taxes, 11 billion were paid as dividends to the Treasury,” he said.
She noted that the first decision made following Wickremesinghe’s appointment as Prime Minister was to arrange with the Oman Trading Company to provide short-term supplies. She added that the Cabinet later instructed Litro Gas to re-invite tenders to find a long-term supplier for a period of 12 months by first providing a short-term supply for a period of four months.
“Due to the impossibility to provide letters of credit for an extended period of time, the Cabinet had also suggested trying to purchase gas through alternative methods. These directives had been followed by the previous chairman. Because they had not signed long-term contracts, even though they had temporarily received gas from the Oman Trading Company, they were not in charge of the supply. Even the suppliers’ faith had been destroyed by the financial crisis, thus they were only providing on a payment basis. They had stopped providing petrol on credit,” she emphasised.
In order to fund an LP gas supply endeavour, Litro turned its daily profits into dollars due to the loss of a long-term supplier and growing client demand. There, the corporation that adhered to the instant purchase policy grew accustomed to purchasing LP gas based on the available cash.
Search for alternatives
A 3,500 MT or 7,000 MT shipment of LP gas that the company began bringing into the market and releasing in the middle of April was by no means enough to meet demand at the time. As a result, the line never got shorter and between 80,000 and 100,000 people would join the queue whenever LP gas was not provided.
By one and a half to two months, 4.5 million new customers were in line, for gas and Litro’s alternate methods did not shorten the lines but instead made them longer.
Even after LP Gas shipments were imported the queues for gas cylinders have not gotten shorter; rather, they have gotten longer. In particular, a black market for gas was established, and because of the high demand, the price of a gas cylinder rose to Rs. 25,000. At that time, Litro verified that the country needed between 3,500 and 7,000 metric tonnes of LP gas to meet its needs, but only that amount was actually supplied.
Theshara Jayasinghe, a former chairman, accused Oman Trading Company of seeking to do corrupt business throughout the acquisition. Due to allegations made in public that the former supplier is engaging in unethical behaviour that is not being addressed by the law, LP gas providers have grown wary of doing business with Litro.
This was also said by Litro’s management as the cause of the interruption in the gas supply. The former chairman immediately ordered the import of LP gas after finding the necessary funds. However, this did not end the nation’s LP gas shortage. If suppliers didn’t behave professionally, they wouldn’t be willing to settle disputes amicably.
Support from the World Bank
Then-Prime Minister Wickremesinghe tasked Sagala Ratnayake with taking the required actions to end the LP Gas problem. His first demand was that a new chairman be appointed in place of the acting one. Peiris should be chosen as the new chairman, according to Ratnayake’s suggestion. Up until 2019, he was the one who held the title of managing director and chief executive of Litro.
Peiris claimed that after persuading them to accept the terms of this nation, Litro continued negotiations with Oman Trading Company and he began to look for funding.
“Thereafter, negotiations to bring 33,000 metric tonnes in 20 days to stop the LP gas lines had begun. Ratnayake’s action sparked the necessary discussions with the World Bank,” he claimed.
Peiris said that although World Bank negotiations had begun prior to his arrival, those had not been successful and that the only reason he had been able to secure their support was a result of a demanding journey during which he had had talks in the morning and presented the future programme in the evening.
“We were extremely cautious when interacting with World Bank staff as their organisation demands high level of transparency. They do not tolerate fraud and corruption. They had thoroughly examined the operations and functions of Litro from various other sources as well. Only the import of LP Gas has so far been successful in the World Bank’s talks to secure the funding allotted for other projects in Sri Lanka. Litro was able to negotiate with the World Bank to obtain 70 million dollars as a result. A three-way deal was formed, according to which Litro promised to provide USD 20 million and the World Bank agreed to contribute USD 70 million,” he said.
Another benefit of the deal with the World Bank is that the Treasury will have another 15 years to repay the World Bank even if Litro pays back the loan on a monthly basis over the course of five months. The Treasury will subsequently own an additional sum of 22 million dollars.
Sagala Ratnayake, who is now the Chief of Staff of the President, said it will take an additional week to clear the gas line throughout the nation.
“We took a risk when we first launched this initiative of introducing a price formula. Even the gas firm’s parent business was contacted by me. By bringing officials and being aware of the hurdles, I sought to remove them. Today, the actions made in collaboration with representatives from the Central Bank and the Litro firm were successful. Therefore, I am overjoyed about that. No matter how many accusations are levelled, today’s populace has access to gas cylinders with only a single phone call. By giving the required orders to the officials, I coordinated this. Today, it has been successful,” he remarked.
By Thameenah Razeek