Fuel prices eat into LIOC profits

Hiran H.Senewiratne

Lanka IOC Plc will focus on the lubricant business with the reduction of their diesel and petrol profit margins, Chairman K. Ramakrishnan said.

"Due to the escalation of international petrol and diesel prices it has become un-economical for them to be in the diesel and petrol business. Therefore, our profits are gradually eroding, prompting us to divert our attention on the lubricant business," Ramakrishnan told at a press conference to announce the income statement of the company.

He said the contribution towards the company's profits of both diesel and petrol together came down to 31 per cent from 80 per cent last year with the focusing on the lucrative lubricant business.

Therefore, uncertain conditions prompted us to diversify into other sources such as lubricants, bunkering and other sources, he said. Currently, Lanka IOC sells more than 400,000 litres of lubricants under the Servo brand for a month that feeds the 15 per cent of the total market share. Therefore, the company expected to grow up to litres 450,000 of lubricants to the market. This will account 18 per cent of the market.

The company had invested Rs 1.4 billion for the lubricant plant at Trincomalee oil farm sometime ago but has no plans to invest in the future with the focusing on the lubricant business, he said. Ramakrishnan said the company was able to record Rs 180 million earnings out of earnings during last year.

The reason being the company to be less focus on lubricant oil business due to the escalation of the international oil prices and removal of the Government subsidy on fuel, he said. Lanka IOC enjoys 19 per cent on diesel and petrol market in the country with 100 odd fuel stations used to sell their other products especially lubricants.

Ramakrishnan said Sri Lanka is the lowest in the region where taxing on diesel and petrol is concerned. This is six per cent from diesel and 36 per cent from petrol business. The company has adopted good accounting policies and methods of computing as disclosed in the audited financial statement for the financial year ended March 31, 2007.

An amount of Rs 795,971 million Value Added Tax receivables has been written off in the accounts for the year ended March 31, 2008 in view of the status of the company not being a processor, he said. The company was able to record a revenue of Rs 44,760 billion in turnover is expected to go down this year due to the volatile market conditions but however, profit margins will retain, he said.