Lanka threatens to take over IOC outlets | india | Hindustan Times
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Lanka threatens to take over IOC outlets

AHM Fowzie, has threatened to take over the retail outlets of the Lanka Indian Oil Corporation (LIOC), writes PK Balachandran.

india Updated: Jul 09, 2006 16:53 IST

The Sri Lankan Oil Minister, AHM Fowzie, has threatened to take over the retail outlets of the Lanka Indian Oil Corporation (LIOC), a wholly owned subsidiary of the IOC, if it does not resume sale of petrol in thirty days' time.

" People are queuing up at my sheds (the retail outlets of the state-owned Ceylon Petroleum Corporation) because the LIOC has stopped supply. I can't allow this to go on indefinitely," Fowzie told Hindustan Times on Sunday.

"I have therefore given them an ultimatum. If they don't resume supplies within thirty days, I will take over their outlets," he said.

LIOC's 162 retail outlets stopped selling petrol about three weeks ago over a dispute with the Sri Lankan Ministry of Finance on the payment of subsidy totalling US$ 70 million for selling patrol at low government-administered prices.

Subsequently, the Sri Lankan Treasury and the LIOC came to a compromise formula, according to which, the government would pay $52 million.

And out of the $52 million, $10 million would be given in cash immediately and the rest in government bonds. The LIOC will be allowed to fix its retail prices when the subsidy system is done away with in due course, presumably in August.

The IOC's board has since ratified the draft agreement. After the Sri Lankan government okays it, a formal agreement will be signed in Colombo.

The Sunday paper The Nation quoted the LIOC's CEO, K Ramakrishnan, as saying that though the new subsidy formula would mean a loss, the LIOC saw no alternative to it.

He hoped that the Sri Lankan government would also ratify it and oil supplies would arrive in Trincomalee by July 15 to enable island-wide retail sales to begin by the first week of August.

Sources in New Delhi felt that in the light of the actual situation, Minister Fowzie's threat of take over, was uncalled for.

They said that the Minister was "playing to the gallery", posing as if was arm twisting the Indian giant into resuming supplies.

Sources in the Indian oil industry also said that news reports that the LIOC would unilaterally fix its retail prices were incorrect. Companies could not sell petrol at different prices because it was not a branded item, they pointed out.

The LIOC and the state-owned CPC would have to come to an agreement on common prices.

This will have to be done, only after the subsidy system is withdrawn. The Sri Lankan government is expected to do this by August.

But realists say that the withdrawal of the subsidy system and allowing the oil companies to fix their own prices are more easily said than done, given the political reality in Sri Lanka.

Traditionally, Sri Lankan governments have been very reluctant to increase the price of petrol. And the present Mahinda Rajapaksa government is left of centre. It also depends for its survival on the staunchly Marxist Janatha Vimukthi Peramuna (JVP) which vehemently opposes any rise in petrol prices.

The LIOC may be heading for turbulent times.