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Laugfs suffers Rs. 658 m losses in FY20

02 Sep 2021

 
  • Wegapitiya attributes losses to Sri Lankan operations
  • Long-delayed gas price hike cited as a reason
  By Shenal Fernando Laugfs Gas PLC has recorded a loss of Rs. 658 million for FY2020, despite the 166% profit growth of its subsidiary SLOGAL Energy.  This loss, as specified by Laugfs Gas PLC Chairman W.K.H. Wegapitiya in the annual report for FY2020, was largely due to its Sri Lankan operations, which is its largest revenue contributor and the only loss-making sector of the company.  Explaining further, Wegapitya claimed that price regulations relating to LP gas which haven't been revised since October 2019, exchange rate depreciation, and import restrictions have adversely affected the profitability of its Sri Lankan operations.  In October 2019, the government reduced the price of a refill 12.5 kg LPG cylinder by 13% to Rs. 1,493. At the time the world market contract prices for Propane and Butane stood at around $ 350-360 per MT. Since then, world market contract prices have risen significantly reaching $ 655-660 per MT as of August 2021. In addition, the Sri Lanka rupee depreciated by 6.4% during the financial year and by 8.5% since the last price revision in October 2019. And as a result, Laugfs Gas has been forced to incur losses of around Rs. 800-900 per each LPG cylinder sold, leading to operational losses of Rs. 389 million. In August 2020, Laugfs gas reduced its supply of LPG to the Sri Lankan market following the failure of the government to take any action, despite several requests made to increase the LPG prices in accordance with world market prices. The resulting public panic regarding a LPG shortage forced the Consumer Affairs Authority to permit Laugfs gas to increase the price of a 12.5 kg cylinder by Rs. 363 to Rs. 1,856 and the price of a 5 kg cylinder by Rs. 145 to Rs. 743. However, Laugfs Gas PLC has protested that this recent price revision was insufficient considering the current world market prices, and that it was in contravention of the express orders made by the Supreme Court in SCFR 163/ 2007 and the agreement between Laugfs Gas PLC and the Consumer Affairs Authority dated 28 December 2007. Laugfs Gas PLC claims that under the pricing formula in the agreement they are entitled to sell a 5 kg LPG cylinder at Rs. 997, and a 12.5 kg domestic LPG cylinder at Rs. 2,493. Therefore, despite the recent price revision, the profitability of Laugfs Sri Lanka operations will continue to be affected by the LPG pricing regulations. In response to such concerns regarding profitability, Laugfs Gas PLC has introduced several cost management initiatives which have improved operational efficiency and yielded cost savings, and has transformed its business model in accordance with consumer needs by making home deliveries or using third party transporters, introducing online ordering systems, and has also extended its dealership network. Most importantly, the company will continue lobbying the government to impose a variable pricing formula for LPG in line with world market prices and exchange rate increase.


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