As Sri Lanka reviews applications from companies wanting to join the nations closed lubricant market, an official with the industrys regulating agency said new competition could very well eat into market shares of existing suppliers.
Companies in Sri Lanka may not produce nor supply lubricants unless they hold licenses from the government to do so. Thirteen companies now hold licenses, but the government decided in mid-2016 to issue additional licenses as a way of promoting competition. The Sri Lanka Public Utilities Commission (PUCSL) is reviewing applications and expects to grant new licenses soon.
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New entrants are expected to promote competition within and between different market segments – for example, between imports and locally produced lubricants, said a PUCSL director who asked not to be identified. He added that the commission believes there may be some consolidation after the admittance of more license holders.
The promotion of competition is likely to reduce margins of certain market participants and to reallocate market shares.
At least some existing companies share those expectations.
All companies are feeling the heat of competition, Lanka IOC Senior Vice President B.B. Patra said in an interview. He noted that the government grants two types of licenses – Stage 1 for importers and Stage 2 for companies that produce lubricants domestically. We have to see at which stage the new companies enter, and then we can formulate our strategy.
Sri Lanka consumes an estimated 54 million liters of lubricants per year.
Existing licensees opposed the governments decision to grant more licensees, but government officials predicted that an increase in competitors would combat fraud and reduce the incidence of lubricant users having to import niche products themselves because they could not find them on the market.