Lanka IOC Asks Ceypetco to Further Raise Prices to Cut Losses

By Anusha Ondaatjie

April 4 (Bloomberg) -- Lanka IOC Plc, the unit of India’s biggest crude oil refiner, asked state-owned rival Ceylon Petroleum Corp. to sell fuels at higher prices to help it stay profitable and cut losses.

The Sri Lankan arm of Indian Oil Corp. loses about 4.50 rupees (4.5 U.S. cents) on a liter of gasoline and 22 rupees on a liter of diesel even after it increased its pump prices on April 2 by 9 percent to 125 rupees and 16 percent to 85 rupees respectively. Policy makers also need to consider lowering import duty on crude, said Managing Director Suresh Kumar.

Sri Lanka, after freeing controls on private oil companies in June 2006, still tells government-controlled Ceypetco to cap gasoline and diesel prices to cool inflation. The limits have forced Lanka IOC to sell its products below cost to remain competitive, incurring losses. Inflation in the island-nation accelerated to a 26-month high in March, increasing pressure on the central bank to raise interest rates.

“We need a phased-out increase in prices,” Kumar said in a telephone interview today. “A price rise on its own, or together with a further compensating duty cut, will help to break even.”

Ceypetco, the country’s dominant fuel distributor and Lanka IOC sell 90 Octane gasoline at the same price, while the former has set its diesel 9 rupees cheaper than its rival.

The Sri Lankan government’s reduction of customs duty on gasoline in January to 5 rupees a liter from 15 rupees had helped it narrow losses and “further duty cuts would be welcome,” Kumar said.

Lanka IOC, which runs about a third of the country’s retail fuel network, reported a surge in third-quarter profit to 602 million rupees from 12 million rupees a year earlier after higher lubricants sales, bunkering operations and foreign- exchange gains, Kumar said.

The company will “see how the market reacts” to the price differential with Ceypetco to make new sales and profit forecasts, he said.

To contact the reporter on this story: Anusha Ondaatjie in Colombo at anushao@bloomberg.net.

To contact the editor responsible for this story: Hari Govind at hgovind@bloomberg.net

source - noir.bloomberg.com