World Bunkering > News > Spring 2011 > Sri Lanka - New port, new row

The recent history of bunkering in Sri Lanka has been of slow and grudging liberalisation, primarily at the main port of Colombo.

Because of their location, Colombo and some other Sri Lankan ports have the potential to be major bunker ports on the main shipping route between the Middle East and Far East. For many years Colombo did indeed fulfil that role. More recently it had been unable to compete effectively with Singapore and other rivals, largely because of its higher prices, which in turn were partly due to lack of local competition.

In 2008, Sri Lanka’s Supreme Court ruled that the 2002 sale of Colombo’s oil storage facility to Lanka Marine Service (LMS) was illegal and ordered the company to vacate premises which houses 12 tanks used for bunkers. That legal move broke an effective monopoly on bunker sales. Sri Lanka Ports Authority (SLPA) established a subsidiary, JCT Ltd Oil Bank, to run the tank farm as a multi-user facility and the market changed dramatically.

There are eight licensed bunkering companies in Sri Lanka but the market is currently dominated by three players; Lanka Marine Services, Indian Oil Corporation’s Sri Lankan subsidiary, Lanka IOC, and Lanka Maritime Services, all with about the same market shares. Since 2008, prices have varied but have often been close to or even lower than Singapore’s. Lanka IOC in particular has had a big effect on prices as it has moved aggressively to grow its business. It has at times been accused of predatory pricing but has responded that it buys its supplies through international tenders and that prices fluctuate depending on market conditions.

The big issue in the Sri Lankan bunkering scene is now the SLPA’s determination to be the sole bunker supplier at the massive new port at Hambantota in the south-east corner of the island. The first phase of the 15-year port project was completed last year. The $450 million project, funded by China, is expected to be completed in four phases and will take 15 years for completion.

From the start Hambantota, now formally known as Magampura Mahinda Rajapaksa Port, has been seen as a bunkering centre, located much closer to the shipping lanes than Colombo. However, the SLPA has also made it clear from an early stage that it wants to be the monopoly bunker supplier. At the opening of the port last year, SLPA chairman Priyath Wickrama told a press briefing that bunkering would be the one area not open to foreign investors at the new port of Hambantota. He told Reuters: “We will handle oil bunkering. We don’t want to give it outside. But bulk cargo handling, storage facility, warehouses, transhipment, and all others are open for investments.”

This January, Mr Wickrama said: “We’re hoping to start bunkering by May this year. We’re going to buy four self-propelled barges to start this business.” It is understood that the SLPA has taken this stance as it sees the bunker business as an important way of earning the cash required to repay the Chinese loans. Unsurprisingly, the Sri Lankan bunker companies are not happy about this and want a share of the action. Lanka Business Online (LBO) reports that the firms argue that increased competition and efficiency will expand the market.

Sri Lanka Shipping has already submitted a proposal to the SLPA to sell ship fuel in Hambantota when it invited investments for industries in the new port, according to LBO. It quotes managing director Mohamed Rezaas saying: “We submitted a proposal to supply bunkers under port services. We’re waiting for a response.”

He added: “People have to go in there and invest and start marketing and offer efficient services at competitive prices to build a market.” similarly, Lanka IOC managing director K R Suresh Kumar is quoted as saying: “We see a lot of potential as it is a strategic location that can attract ocean-going vessels on the East-West shipping route. We’ve conveyed our interest to the authorities and hope everyone will get an opportunity along with the SLPA.”

He argued that the SLPA could earn revenue by leasing the bunker fuel storage tanks to the private sector, which can do the marketing and selling. “It is not necessary for the entire marketing of bunkers to be handled by the SLPA. By allowing more players the business can expand,” he said.