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Thursday December 8th, 2022

Sri Lanka presidential probe on gas explosions contradicts previous official claims

The presidential committee handing over its report to the president

ECONOMYNEXT – In a swift and blatant contradiction of a claim by key government officials that substandard accessories had caused some 800 cooking gas explosions in Sri Lanka since October, a presidential committee which probed the matter said on Tuesday (21) that a controversial composition change in the gas cylinder was, in fact, largely to blame.

Prof Shantha Walpolage, the head of the committee appointed by President Gotabaya Rajapaksa, told reporters that the hotly debated composition change was the main reason for the recent series of explosions which had become a major safety hazard to the public.

“The cylinders, regulators, stoves, and other equipment have remained unchanged. What was subjected to change was the gas composition,” Walpolage said, a day after his committee presented the fact finding report to President Rajapaksa.

More than 800 gas cylinder related explosions have occurred since October 28.  A 53-year-old woman was killed in an explosion that occurred in central Sri Lanka earlier this month, and no one has yet to officially take responsibility for the tragedy.

Related: Sri Lanka’s mysterious gas explosions become nobody’s baby

Walpolage said the conclusion was arrived at through a scientific data collection method, with information gathered from all stakeholders including both gas companies, the state-owned Litro Gas Lanka Ltd and Laugfs Gas (Pvt) Ltd, that make up Sri Lanka’s liquid petroleum (LP) gas duopoly. Data was also collected from testing labs and select locations where explosions had occurred.

As a short term solution, the expert proposed that the propane content in the gas cylinder be reduced to 30 percent while adding more ethyl mercaptan, a pungent-smelling chemical compound used as an additive for consumers to detect any leaks, to the mix.

Former Consumer Affairs Authority Executive director Thushan Gunawardena told media as early as April, well before the recent spate of explosions, that Litro had changed the composition of the gas inside the cylinders and increased the propane content to above 30 percent, while reducing butane.

The Court of Appeal earlier this month ordered that both Litro and Laugfs maintain a mix of 70 percent butane and 30 percent propane in the LP gas cylinders they sell, following the revelation.

Experts have hypothesised that increasing the propane content of the cylinder to 50 percent had resulted in high pressure which had led to leaks from the cylinder. However, this has yet to be proven scientifically.

Contradictory view at PMC briefing

The presidential committee’s finding, however, is completely contradictory to what some senior officials had said barely a day earlier at the Presidential Media Center (PMC), just before the Walpolage-led committee handed over its report to President Rajapaksa on Monday (20).

Jayantha de Silva, Secretary of the Ministry of Technology which is under the purview of President Rajapaksa, and Senior Deputy Inspector General (SDIG) Deshabandu Tennakoon who spoke at the event claimed that used regulators and stoves could have been the reason for the explosions.

“The investigations carried out in many parts of the country have revealed that the equipment used for gas stoves, including the regulator, are substandard,” de Silva told a virtual media briefing organised by PMC and moderated by President’s Spokesman Kingsly Rathnayaka.

“A lasting solution will be provided to the issue by enabling the people to purchase equipment that meet the required standards within the next three months,” de Silva said.

The ministry secretary said the responsibility of ensuring that the accessories meet the stipulated standards will also be vested with the two gas companies in the future.

Litro chairman denies composition theory

Litro Gas Lank Ltd Chairman Theshara Jayasinghe was on the same panel at the PMC’s media briefing where he ruled out the composition hypothesis, claiming that the reported change had nothing to do with the explosions.

Jayasinghe said that there is no change in the composition of Litro cylinders and  foreign expertise is being sought in this regard. The public need not have any undue fear when using LP gas, he added.

“Though some have suggested that the cause of the gas leaks and explosions was a change in the composition of the gas, it has now been confirmed that none of the incidents reported so far have been caused by a change in composition,” he said.

The company has agreed to provide an insurance cover of one million rupees per person if such an incident occurs due to the standard of the gas, he said.

“Recommendations with Sri Lanka Standards (SLS) certification for LP gas have now been issued, and the gas composition is a mixture of 70% butane and 30% propane.”

Senior DIG Tennakoon said at the same media briefing that the Government Analysts’s department has conducted comprehensive investigations into the incidents.

“It has been reported that the majority of incidents have occurred due to substandard gas stove accessories and the improper use of such equipment,” Tennakoon said.

He said more than 15,000 cases of gas stove and regulator-related repairs were recorded throughout the country in 2019 as well as 2020, according to a police survey.

There is no cause for taking legal action as it has not been scientifically proven that these were conducted with a criminal intent, said Tennakoon.

At the event, the public was also asked to purchase higher quality gas stoves and equipment that meet the standards and from reputed companies. (Colombo/Dec22/2021)

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Sri Lanka in deep talent drain in latest currency crisis

ECONOMYNEXT – Sri Lanka businesses are facing a drain of talent, top business executives said as the country suffers the worst flexible exchange rate crisis in the history of its intermediate regime central bank and people lose hope.

“We are seeing a trend towards migrating,” Krishan Balendra, Chairman of Sri Lanka’s John Keells Holdings told an economic policy forum organized by the Ceylon Chamber of Commerce.

“We have seen an impact mainly on the tourist hotels side, quite an exodus of staff (migrating) to countries we have not seen in the past. 

“We have seen people go to Scotland, Ireland. It has usually been the Middle East and Maldives. Australia seems like a red hot labor market at the moment.”

Sri Lanka’s rupee collapsed from 200 to 360 to the US dollar after macro-economists printed money to suppress rates.

Sri Lanka operates a ‘flexible exchange rate’ where errors in targeting interest rates are compensated by currency depreciation especially after the 1980s.

Classical economists and analysts have called for the power to mis-target rates and operate dual anchor conflicting monetary regimes should be taken away to prevent future crisis.

Currency crises are problems associated with flexible exchange rate central banks which are absent in hard pegs and clean floats.

“Something new we are seeing is that older people, even those in their 50s, which was a surprise, are looking at migrating,” Balendra said.

Businesses are trying to retain talent as real wages collapse.

Balendra said as businesses they see some stability returning and based on past experience growth is likely to resume, and they were communicating with the workers.

“We have a degree of conviction that the economy should get better, its the stability phase now and it will get better going forward so without the way our businesses are placed we should see good growth,” Balendra said.

“We can’t chase compensation that’s just not practical and we are not trying to do that especially if people are looking to immigrate but what we can do is show the career opportunities in the backdrop of the situation that people would rather stay here because its home.” 

Sri Lanka unit of Heineken says it is also trying to convince workers not to leave, with more success.

“We are all facing the effects of brain drain and it’s not just the lower levels… What we are doing is a balance of daring and caring,” Maud Meijboom-van Wel – Managing Director / CEO, Heineken Lanka Ltd told the forum.

“Why I say daring is, you have to be clear in what you can promise people, when you make promises you have to walk the talk. So with the key talents and everyone you need to have the career and talent conversations.

“I am a bit lucky because I am running a multinational company so my career path goes beyond Sri Lanka so I can say if you acquire certain skills here, then you can move out of here and then come back too, that is a bit easier for me but it starts with having a real open conversation with walking the talk – dare and care.” (Colombo/Dec7/2022)


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Despite losses, Sri Lanka to resume “park & ride” transport after complaints  

ECONOMYNEXT –  Sri Lanka’s state-run Transport Board will resume its loss-making City Bus service from January 15, 2022 Cabinet Spokesman Bandula Gunawardena said, after the service abruptly discontinued with the state-run firm’s director board citing losses.

The City Bus service was introduced in 2021, under the government of former President Gotabaya Rajapaksa, from Makubura to Pettah and Bambalapitiya.

The service was started to reduce the number of automobiles travelling to and from Colombo and suburbs by providing a comfortable, convenient and safe public bus transportation for passengers and riders who use cars and motorcycles as their means of transportation.

During the time period in which the service was initiated, there were 800 hundred vehicles that would be parked and would use the system, Gunawardena, who is also the Transport Minister, said.

The service was later collapsed due to inconsistencies in scheduling and it was completely stopped after

“Without informing the Secretary or the Minister of the relevant Ministry, the Board of Directors have come to a conclusion that this is loss making route and must be halted,” Gunawardena said.

“The users of the City Bus service brought to our notice and therefore I gave the Secretary to the Ministry of Transport the approval to start the City Bus service from January 15.”

“If we stop all loss making transport services then massive inconveniences will occur to the people in far parts of the island.”

The chairman of the state run Ceylon Transport Board has been asked to handover the resignation letter by the Minister Gunawardana citing that the head has failed to implement a policy decision approved by the government. (Colombo/ Dec 06/2022)

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Sri Lanka may see rates falling next year: President

ECONOMYNEXT – Sri Lanka’s interest rates are high and hurting small businesses in particular but interest rates are required to maintain stability, President Ranil Wickremesinghe said.

“One is, all of you want to know what’s going to happen to the interest rates?,” President Wickremesinghe told an economic policy forum organized by the Ceylon Chamber of Commerce.

“I wish I know. The governor has told me that the inflation has peaked. It’s coming down. You all understandably want some relief with the interest rates to carry business on.”

“I understand that and appreciate the viewpoint. It’s not easy to carry business on with such high interest rates. On the other hand, the Central Bank also has to handle the economy. So maybe sometimes early next year we will have a meeting of minds of both these propositions.”

Sri Lanka’s interest rates are currently at around 30 percent but not because the central bank is keeping it up. The central bank’s overnight policy rate is only 15.5 percent but the requirement to finance the budget deficit and roll over debt is keeping rates up.

Rates are also high due to a flaw in the International Monetary Fund’s debt workout framework where there is no early clarity on a whether or not domestic debt will be re-structured.

After previous currency crises, rates come down after an IMF deal is approved and foreign loans resume and confidence in the currency is re-stabilished following a float.

This time however there has been no clear float, though the external sector is largely stable and foreign funding is delayed until a debt re-structure deal is made.

Sri Lanka’s external troubles usually come because the bureaucrats do not believe market rates are correct when credit demand picks up and mis-uses monetary tools given in 1950 by the parliament to suppress rates, blowing the balance of payments apart.

The result of suppressed rates by the central bank are steep spikes in rates to stop the resulting currency crisis.

A reserve collecting central bank has little or no leeway to control interest rates (monetary policy independence) without creating external troubles, which is generally expressed as the ‘impossible trinity of monetary policy objectives’.

However, it has not prevented officials from trying repeatedly to suppress rates, perhaps expecting different results.

After suppressed rates – supposedly to help businesses – trigger currency crises, the normalization combined with a currency collapse leads to impoverishment of the population.

The impoverishment through depreciation leads to a consumption shock, which also leads to revenue losses in businesses.

The suppressed rates then lead to bad loans.

In the 2020/2022 currency crisis the sovereign default has also led to more problems at banks. Several state enterprises also cannot pay back loans.

“…[T]he bad debt that is being carried by the banks is mainly from the private sector or the government sector,” President Wickremesinghe said.

“Keep the government sector aside. We’re dealing with it. How do you handle it? Look, one of our major areas of are the small and medium industries. You can’t allow them to collapse, but they’re in a bad way.”

Classical economists and analysts have called for new laws to block the ability to central bank to suppress rates in the first place so that currency crises and depreciation does not take place in the first place.

Then politicians like Wickremesinghe do not have to take drastic and unpopular measures to fix crises and there will be stability like in East Asia.

Sri Lanka had stability until 1950 when the central bank was created by abolishing an East Asia style currency board. The currency board kept the country relatively stable through two World Wars and a Great Depression.

In 1948 after the war (WWII) was over “we stood second to Japan” Wickremesinghe said.

“But we started destroying it from the sixties and the seventies,” he said. :We started rebuilding an economy, which was affected by a (civil) war, and thereafter the way we went, is best not described here.”

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