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By Ravi Ladduwahetty

The Government's decision to divest the 90 percent equity stake in Lanka Marine Services Ltd, the wholly owned Ceylon Petroleum Corporation (CPC) subsidiary dealing with a monopoly bunkering service in the Colombo Port, has run into stormy seas with the five bidders being asked to enter into a Memorandum of Understanding (MoU) with the Trade Unions.

The five prospective bidders have been told to enter into the MoU at a meeting with Chairman of the Public Enterprise Reforms Commission (PERC) Chairman, Dr. P.B. Jayasundera on Monday night.

The bidders earlier expressed their dissent about the floor price of Rs. 1.2 billion for the sale of the 90 per cent equity stake of the bunkering monopoly.

The bidders are: John Keells Holdings Ltd, Maritime Holdings Ltd in association with Fal Bunkering of the United Arab Emirates, Lanka Transformers in association with Fuji Petroleum of Japan and Van Ommeran of Bangladesh, Master Divers in association with Bakri International of Saudi Arabia and Pioneer Bunkering Services of Sri Lanka headed by veteran business magnate Nahil Wijesuriya.

The bidders are perturbed that the PERC, in addition to demanding that they enter into an MoU with the CPC unions have also declared that the deal has a floor price of Rs. 1.2 billion which is far in excess of its worth, authoritative commercial sources told the Daily News yesterday.

These sources point out that the US$ 1.2 million floor price is far too much in the wake of:

(a)The Government's decision to give the Trincomalee tank farm to the Indian Oil Corporation and reducing the competitiveness of the Colombo Port.

(b)The bidders having to sign a bond with PERC which means that they have to put down 10 per cent of the floor price value and face the prospect of losing it.

(c)Colombo's bunkering market being far in excess of Singapore where Colombo's gasoline is more expensive by US$ 80- 100 per ton and fuel being more expensive by US$ 50-60 per ton.

(d) the net worth of the company not being more than US 8 million and that the floor price should have been not more than Rs. 800 million. This is in the light of the written down value of tanks which are 300,000 tonnes capacity and five years old and need of repair whose written down value is US$ 3 million (Rs. 300 million) and the two barges are worth only US$ 500,000 (Rs. 50 million) This is also on the basis that the eight-acre plot of land of the company is valued at Rs. 300,000 per perch and an acre is priced at Rs. 48 million according to market rates.

Lanka Marine Services Ltd had a Rs. 3 million turnover for the year ended 2001, gross profit of Rs. 398 million, operating profit of Rs. 215 million and a post-tax profit of Rs. 155 million. The total operating capacity is 31,007 tonnes comprising 1,082 tonnes of Marine Diesel Oil, 6,991 tonnes of Marine Gas Oil and 23,294 tonnes of Fuel Oil.

What this means is that the Ceylon Petroleum Corporation is not prepared to take further losses and liabilities following the Government's decision to reduce the prices of diesel and petrol, they lamented.

"However, what is the message that the Government intends sending to the private sector and the investors hot on the heels of the bids for the deal to be invited from the five shortlisted bidders on the floor of the Colombo Stock Exchange on Friday?", they queried.

When pointed out that the floor price of Rs. 1.2 billion was too high by the bidders at the meeting with PERC, Chairman, Dr. Jayasundera had pointed out that it was the DFCC Bank which had valued the deal at Rs. 1.2 billion and claimed that the DFCC Bank had credibility on the valuation issues.

However, these sources point out that despite the DFCC's Bank's credibility as a financial institution, it did not have expertise in petroleum technology and that the assets of Lanka Marine Services should have been valued by an international team of valuers which also should have had petroleum experts.

Analysts also argue that a further bone of contention of the entire transaction is that the new owner of the LMS would not have afforded the ownership of the pipelines and would have to be at the mercy of the CPC.

Analysts also point out that the Government would be leaving the floodgates open for the Indian Oil Company to take over the bunkering operation as well in the backdrop of the peace process. 

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Copyright 2001 The Associated Newspapers of Ceylon Ltd.
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