Sri Lanka to license more lube brands with entry barriers
ECONOMYNEXT – Sri Lanka has invited more players to import, export and blend lubricants in a new licensing round with several entry barriers including prior experience that limits entry to existing foreign brands.
Sri Lanka now has 13 firms selling 22 brands of lubricants, with an annual demand of 64,485 kilo litres valued at 26.5 billion rupees in 2017. There is one domestic brand, Laugfs.
"With the view of creating healthy competition for quality lubricants, the GOSL has decided to invite Requests for Qualification (RFQ)…" the Petroleum Ministry said.
Sri Lanka does not yet have an independent regulator for lubricants, though the Public Utilities Commission of Sri Lanka is the ‘shadow regulator’ pending a change to its governing law.
Proposals have been called to set up blending plants or to import and sell lubricants, greases, marine lubricants (bunkers) and transmission oil.
A company wanting to blend or produce lubricants and grease in Sri Lanka must have at least 5-years of experience in the lubricant business and show its capacity to invest a minimum of 5 million dollars.
A blending plant has to be built on a tentative approval.
“In this regard, the GOSL will convey its written intention to grant authorization, enabling the successful applicant to proceed with the construction of the blending plant,” the request for proposals said.
The final approval to produce will be given only after the government is satisfied with the technical specifications of the plant, the document said.
A lubricant blending plant should have a minimum capacity of 7,500 metric tonnes, while for grease, the minimum capacity is 1,000 metric tonnes.
In order to trade, distribute or sell automotive and marine lubricants and greases, a company must own or have an agency for a brand name, have at least 5 years of experience in the industry and show an ability to invest 1 million dollars, the ministry said.
To trade, distribute or sell genuine transmission oil recommended by an original equipment manufacturer, a company must be the sole accredited agent for it and have 5-years of experience.
Sri Lanka created a state monopoly in 1961 as part of overall restrictions placed on economic freedom of ordinary citizens by native rulers after gaining self-determination from the British to help state owned enterprises controlled make easy profits without competition and deny choice to citizens.
The state monopoly also prevented Sri Lanka from becoming a bunkering hub, allowing places like Singapore and Dubai to grow instead, economic analysts say.
A state or monopoly has no incentive to buy supplies at the lowest price and procurement corruption or transfer pricing can make prices uncompetitive.
In 1994 the lubricant unit was privatized, also as a monopoly to Caltex, which was later acquired by Chevron.
Economic freedom started to come back to drivers and riders in 1998, 50-year after independence six brands was licensed to import and sell lubricants.
After 2011, more brands were licensed , giving more economic freedom to the people, with existing licenses also renewed. Lanka IOC was allowed to blend.
The monopoly of Caltex/Chevron had since reduced with people exercising economic freedoms in the partial free market.
Chevron’s market share, originally built with the coercive power of the state had fallen from 71 percent in 2009 to 39.9 percent by 2017 though the overall market has also grown with car ownership growing.
Industry players have said that ‘fake’ lubricants are also in the market, in the form of recycled used oil. (Colombo/Sept10/2018)