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Rasheeda Bhagat

Mr M. Nageswaran, CEO and Managing Director, Lanka IOC

HAVING captured 30 per cent share in the retail petroleum products market, Lanka IOC, a wholly-owned subsidiary of IOC, is now looking beyond Sri Lanka, exploring the opportunity of offering bunkering facilities to ships that pass the shipping lane between West Asia and Singapore, Mr M. Nageswaran, CEO and Managing Director, Lanka IOC, told Business Line in an interview in Colombo.

Excerpts:

What has been your progress in the retail petroleum market in Sri Lanka?

Lanka IOC has revolutionised the retail oil business in Sri Lanka. We entered Sri Lanka with an MoU signed between the Governments of India and Sri Lanka in June 2002. We commenced our operations in January 2004 and by now have captured a 30 per cent market share even though we have only 17 per cent of petrol outlets. It might sound unparliamentary, but the Finance Minister of Sri Lanka has gone on record that while Ceylon Petroleum outlets look like public toilets, Lanka IOC outlets have changed the scene totally. We have proved that a public sector company can also be a multinational... that efficiency need not only be the forte of the private sector. In the lubricant sector our market share is 18 per cent. We don't have a lube blending plant and there is a duty differential between lube blending here and imported lube. So we're planning to put up a lube blending plant at Trincomalee.

At what cost and when will it be operational?

At a cost of $5 million. The plant will be ready in six to eight months after which I see our market share in lubricants exceeding 50 per cent. When we came in, there was a very strong anti Indian sentiment, with people having question marks on the quality of Indian products, which they thought were sub-standard. As you know this country imports goods from all over the world. But in a short time we've made a mark and the highest petrol-selling outlet in Colombo belongs to Lanka IOC!

What about the other players?

The local player is Ceylon Petroleum and has the remaining 70 per cent market share. Our IPO, which came out in November 2004, offering 25 per cent shares, was oversubscribed 11.9 times. This is a record as also the fact that at 36,000 we have the maximum number of shareholders. Earlier Sri Lanka Telecom held that record with 21,000 investors. Also our IPO brought in 42 FIIs, of which 17 were first time entrants to Sri Lanka.

What are the prices of petrol and diesel here?

A litre of petrol costs Rs 84 ($1 fetches 100 Sri Lankan rupees) and diesel is around Rs 40. The price mechanism is administered by the Government and though till recently the petrol price was on par with international oil prices, there is a subsidy of Rs 6 in the diesel price.

At Sri Lanka Rs 84 a litre petrol is cheaper than in India at around Rs 42.

Yes, but in India it costs that much because of the excise duty and other factors whereas here the taxes are minimal.

So are you making profits here?

Oh yes! In FY 04-05 or total turnover was Sri Lanka Rupees 27,856 million, gross profit Sri Lanka Rupees 2,503 million and net profit Sri Lanka Rupees 2,329 million. We're not only a highly profit making company, but are also offering a badly needed service here.

Surely you're looking at expansion; what are your future plans?

We have a lot of plans. We want to enter the LPG and aviation market too. With a customer base of 30 million LPG users in India... surely the highest in the world, nobody can match our experience and expertise. And as soon as the Government decentralises the aviation industry, we'll enter that sector too.

But we have bigger plans beyond Sri Lanka, and one of them pertains to bunkering. Sri Lanka has got a limited geographic area and population and it doesn't have any petrochemical industry so the growth here in absolute terms for petroleum marketing is limited. For first three years of our existence, we've looked at Sri Lanka but now the time has come to look out of Sri Lanka and bunkering offers a huge opportunity. From the West Asia up to Singapore, in the entire shipping lane there is no quality bunkering point. Nearly 150 ships pass through this shipping lane daily and we intend to offer barge bunkering (carrying fuel in a barge to fuel the passing ships) at mid sea, keeping Trincomalee as the base. Even if we can catch 10 per cent of this market - which means 5 vessels a day - this will give us more than 2.4 lakh tonnes of sales per annum and that's a huge volume.

So Trincomalee will become a bunkering hub?

Yes, we are confident of doing that. Trincomalee has the storage facilities; it has 100 storage tanks - one was destroyed by the Japanese, but the other 99 are still there - for storing petroleum products. Each tank has the capacity to store about 11,500 tonnes and these tanks are a standing example of the engineering marvel of the British. Trincomalee is the fifth best natural harbour in the world and some of the tanks, even though unapproachable, are intact. Ceylon Petroleum was using only 7 tanks, and we are now using 17 tanks leased to us by the Government of Sri Lanka for 35 years.

We've now put these 17 tanks into operation and they will more than suffice for our bunkering operations. To give quality bunkering service, two things are necessary; capacity to store and capacity to deliver. We have both.

Where will the product come from?

We'll source it from India, Singapore or elsewhere through global tendering. The moment we make Trincomalee into a bunkering hub, its entire economic complexion will change.

For Sri Lanka it will become a money-generating proposal with so many vessels coming, and ancillary industries like hotels will also come up. Being a Sri Lankan company, we should bring riches into Sri Lanka.

How much is your operation going to cost?

In Trincomalee we have so far spent $4 million and improved the jetty facilities as also the pipeline and pumping facilities. Some of the terminals in India do not have the kind of facilities we have established in Trincomalee.

Being a public sector company in India, we had a lot of constraints in tendering and other things, but here we are a private company, even though wholly owned by the Government of India.

What has been your overall experience in Sri Lanka?

I must put on record the co-operation we've got from the Government of Sri Lanka and the agencies here; it is much better than what we get in India. Though there was a strong anti-Indian sentiment with regard to quality in the beginning, they now know we mean business and can deliver quality.

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