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By Channa Kasturisinghe

The Fair Trading Commission (FTC) has held that Shell Gas Lanka Ltd (SGLL) while holding a monopoly in the local LP gas market is operating against the public interest.

The FTC investigated SGLL's activities in the local LP gas market since last December as the frequent increases in the LP gas prices have made life difficult for the consumer and has come to the conclusion that SGLL's marketing practices have restricted the consumers' choice and competition preventing other players to enter the market.

At present SGLL and Laugfs Lanka Gas (Pvt) Ltd. are the only two suppliers of LP gas in Sri Lanka. SGLL which accounts for 80 percent of the market share is violating consumer rights by retaining a portion of the cylinder deposits without making refunds restricting the consumers' choice.

The FTC commenced an investigation in relation to SGLL in terms of the Fair Trading Commission Act with respect to a possible existence of a monopoly situation in the LP gas market in Sri Lanka which operates against the public interest.

The Commission requested SGLL to submit the relevant information considered necessary for the investigation and subsequently summoned Robert Moran, the Country Chairman of SGLL before the commission on December 5, 2002.

The Commission has requested Robert Moran to give evidence on matters including the present market share of SGLL in the local LP gas market and the Company's cylinder deposit procedure.

Following the hearing the Commission has determined that SGLL holds a monopoly situation in the LP gas market in Sri Lanka taking into consideration Section 12 of the FTC Act which defines a monopoly situation in the market.

According to the Gazette notification on December 7, 1988 the prescribed percentage of LP gas for the purpose of determining a monopoly under Section 12 (6) of the FTC Act is 50 percent. However, Robert Moran's giving evidence before the commission has accepted that SGLL accounted for 80 percent of Sri Lanka's LP gas market.

"According to the information submitted by SGLL and by the investigations carried out by the Commission it is clear that SGLL enjoys a monopoly in the LP gas market in Sri Lanka," the Commission said.

The Commission has also determined that SGLL while holding the monopoly in the local LP gas market has used its dominant position in a manner that restricts the consumers' choice and competition and has thereby operated against the public interest.

The Commission has also questioned Robert Moran on matters including the interest income accrued by SGLL from cylinder deposits and its possible impact on the selling price, the manner in which the depreciation costs of a cylinder is being absorbed into the price of a 12.5kg LP gas cylinder, the cylinder deposit procedure and the break down and details of `company recovery' in the pricing formula of LP gas.

The SGLL Country Chairman has told the Commission that the owner of the cylinder is the Company and that the deposit is only meant for the use of the cylinder, and it is the Company policy to retain a portion of the cylinder deposit as non-refundable when the consumer surrenders the cylinder to SGLL. He has also stated that the non-refundable deposit is meant for maintenance of the cylinder.

However, the Commission points out that the selling price of a cylinder of LP gas is inclusive of the maintenance cost of a cylinder under the item of `operating cost' which is a component of `company recovery' in the pricing formula for the sale of LP gas. The FTC has considered the effects of this conduct by the SGLL on the prevaling competition, consumer choice and public interest.

"At present, SGLL takes a deposit of Rs.2,150 for a new empty 12.5kg cylinder. This deposit has two elements. One is the refundable deposit of Rs. 1,110 and the other is the non-refundable deposit of Rs.1,000. SGLL's practice of refunding only part of the cylinder deposit when a cylinder is returned compels the consumer to be tied-down to SGLL and restricts the freedom of the consumer to change to another supplier. This practice of SGLL restricts competition and distorts the market," the Commission said.

The Commission taking into consideration the assertion by SGLL that the cylinder deposit is only meant for the use of the cylinder has determined that the consumers (depositors) are entitled, at the time the cylinder is surrendered, to the refund of the entire cylinder deposit made by them.

It is of the view that SGLL should pass on to the consumers the potential interest income accruable for a given year (based on the One Year Weighted Average Treasury Bill Interest Rate for that year) during the following year. The Commission is also of the view that effective from January 15, SGLL should pass on to the consumers the potential interest income accruable for the year 2002 (based on the One Year Weighted Average Treasury Bill Interest Rate for the year 2002 being 12.5 percent) at the rate of Rs.45 per each day and every 12.5kg cylinder of LP gas sold during the year 2003.

During the inquiry Robert Moran has said that the monies derived from cylinder deposits is re-invested in the business. However, the Commission has concluded that SGLL earns a profit from and out of the reinvestment of the cylinder deposits in SGLL.

"For the purpose of this investigation, the Commission assumes that the potential rate of interest income accruable on monies collected as cylinder deposits would not be less than the One-year Weighted Average Treasury Bill Interest Rate.

During the last year this rate was 12.54 per annum. At present, all such income is considered to accrue purely to the benefit of SGLL.

Therefore, the Commission concludes that on the current deposit of Rs.2,150 per 12.5kg cylinder, potentially SGLL earned an annual interest income of Rs.269.60 as revenue per cylinder in the year ending December 31, 2002.

The Commission is of the view that SGLL should take into consideration annually the potential interest income accruable during the previous year when determining the price of LP gas for the ensuing year," the Commission said.

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Copyright 2001 The Associated Newspapers of Ceylon Ltd.
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