18 Mar, 2014 10:59:22
Mar 18, 2014 (LBO) - Sri Lanka's lubricant market is estimated to have stagnated or contracted further in 2013, on top of a decline in 2012, Chevron's unit in the island said while cautioning against state attempts to expand trade freedoms of the people.
"We estimate that the lubricants consumption would have remained stagnant or reduced further on top of the 4 contraction in 2012 due to adverse weather conditions in the first quarter of the year, reduced vehicle imports and longer oil drain intervals," Chevron Lubricants chief Kishu Gomes told shareholders."The reduced demand from the thermal power sector also contributed to the lower consumption of lubricants."
Thermal power generation has since picked up amidst dry weather.
Sri Lanka's lubricant market is estimated at around 55 million litres a year.
While revenues fell to 11.2 billion rupees in 2013 from 11.7 percent in 2012, cost fell to 7.0 billion rupees from 7.9 billion, helping boost profits to 2.5 billion rupees from 2.2 billion rupees.
Gomes said raw material prices were favourable and the firm had improved efficiencies.
Anti-Competitive
The firm spoke out against state moves to relax a licensing regime and help consumers by improving their trade freedoms.
"While all big global and regional lubricant players have a presence in the Sri Lankan market, with 13 players operating in a market that is relatively small with a potential of 55 mn litres per annum, the Ministry of Petroleum Industries has initiated action to award further licences to new entrants to the lubricants industry," Gomes said.
"While more competition may be good for the consumer it becomes imperative to bring about the right regulations and put in place a legal framework to ensure sanity in the market for fair play and to safeguard the consumers."
Sri Lanka's lubricants market was at one time an absolute state monopoly, and for several years after the lube business was spun off from state-run Ceylon Petroleum Corporation it continued as a private monopoly.
The industry was opened up in stages, allowing incumbents to continue making large profits.
Mercantilist Legacy
Economic analysts say monopolies were introduced to Asia by Mercantilist imperial companies such as the Dutch East India company (VOC) and the British East India company.
In Sri Lanka the most draconian of them involved a cinnamon monopoly, but there were many others ranging from salt to tobacco.
The legacy of their grip slackened in Sri Lanka especially in the mid 19th century as free traders and other liberals especially in Britain defeated Mercantilism, economic nationalism and slavery.
However after independence from British rule, many state enterprises were created with monopolies which were enforced strictly against citizens by the elected ruling class in a range of areas that were not seen even under colonial rule, critics say.
Analysts say most modern multi-national firms which are true-capitalist companies usually thrive on competition and rely on branding and quality to win over customers rather than depending on the coercive police power of the state involving regulation, licensing or import taxes.
In Western markets there are also competition regulations against monopoly power of a dominant single player.
In general it is about 38 percent market share in the EU and 60 percent in the US, though there is debate about freely won market share.
Chevron however inherited a 100 percent state monopoly under a privatization program in the 1990s and has since seen its market share reduce amid competition.
Lube Fraud
Gomes also said there was widespread fraud in the industry involving product adulteration and 'cross filling' containers of branded with other companies, especially by unlicensed players.
"With the increased number of players that may enter the market in 2014, these issues are likely to get aggravated," he claimed.
It was not clear how the activities of unlicensed players or frauds by existing licensed players are related to the entry of new licensed players.
Gomes said the Public Utilities Commission of Sri Lanka was the shadow regulator for the industry but lacked the teeth to combat fraud.
Economic analysts say and copyright and anti-fraud laws have to be enforced and regulations should be directed at enforcing internationally accepted standards required by motor manufacturers, but limiting the number of players should not be a goal in a free country
Thermal power generation has since picked up amidst dry weather.
Sri Lanka's lubricant market is estimated at around 55 million litres a year.
While revenues fell to 11.2 billion rupees in 2013 from 11.7 percent in 2012, cost fell to 7.0 billion rupees from 7.9 billion, helping boost profits to 2.5 billion rupees from 2.2 billion rupees.
Gomes said raw material prices were favourable and the firm had improved efficiencies.
The firm spoke out against state moves to relax a licensing regime and help consumers by improving their trade freedoms.
"While all big global and regional lubricant players have a presence in the Sri Lankan market, with 13 players operating in a market that is relatively small with a potential of 55 mn litres per annum, the Ministry of Petroleum Industries has initiated action to award further licences to new entrants to the lubricants industry," Gomes said.
"While more competition may be good for the consumer it becomes imperative to bring about the right regulations and put in place a legal framework to ensure sanity in the market for fair play and to safeguard the consumers."
Sri Lanka's lubricants market was at one time an absolute state monopoly, and for several years after the lube business was spun off from state-run Ceylon Petroleum Corporation it continued as a private monopoly.
The industry was opened up in stages, allowing incumbents to continue making large profits.
Mercantilist Legacy
Economic analysts say monopolies were introduced to Asia by Mercantilist imperial companies such as the Dutch East India company (VOC) and the British East India company.
In Sri Lanka the most draconian of them involved a cinnamon monopoly, but there were many others ranging from salt to tobacco.
The legacy of their grip slackened in Sri Lanka especially in the mid 19th century as free traders and other liberals especially in Britain defeated Mercantilism, economic nationalism and slavery.
However after independence from British rule, many state enterprises were created with monopolies which were enforced strictly against citizens by the elected ruling class in a range of areas that were not seen even under colonial rule, critics say.
Analysts say most modern multi-national firms which are true-capitalist companies usually thrive on competition and rely on branding and quality to win over customers rather than depending on the coercive police power of the state involving regulation, licensing or import taxes.
In Western markets there are also competition regulations against monopoly power of a dominant single player.
In general it is about 38 percent market share in the EU and 60 percent in the US, though there is debate about freely won market share.
Chevron however inherited a 100 percent state monopoly under a privatization program in the 1990s and has since seen its market share reduce amid competition.
Lube Fraud
Gomes also said there was widespread fraud in the industry involving product adulteration and 'cross filling' containers of branded with other companies, especially by unlicensed players.
"With the increased number of players that may enter the market in 2014, these issues are likely to get aggravated," he claimed.
It was not clear how the activities of unlicensed players or frauds by existing licensed players are related to the entry of new licensed players.
Gomes said the Public Utilities Commission of Sri Lanka was the shadow regulator for the industry but lacked the teeth to combat fraud.
Economic analysts say and copyright and anti-fraud laws have to be enforced and regulations should be directed at enforcing internationally accepted standards required by motor manufacturers, but limiting the number of players should not be a goal in a free country
