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 Post subject: Lanka IOC to Build Gas Stations in Former Rebel City
 Post Posted: Wed Jun 29, 2005 2:58 am 
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Lanka IOC to Build Gas Stations in Former Rebel City


June 28 (Bloomberg) -- Lanka IOC Ltd., a unit of India's largest oil refiner, plans to open gas stations in Jaffna, a Sri Lankan city formerly held by rebels that killed 1,500 Indian peacekeeping troops during the two-decade civil war.

``We want to bring Lanka IOC to the whole island,'' said Lanka IOC Managing Director Mahadevan Nageswaran in a June 23 interview in the capital, Colombo. ``People think of us as an oil company, not as an Indian company.''

Lanka IOC, a unit of Indian Oil Corp., follows rival fuel seller Ceylon Petroleum Corp. and Dialog Telekom Ltd., Sri Lanka's biggest cell-phone operator, into the former rebel-held area after a 2002 cease-fire revived the $20 billion economy, lifting car sales 23 percent last year. The investment is the first in the area by an Indian company since the country sent 60,000 troops to northeast Sri Lanka between 1987 and 1990.

``In Jaffna, petroleum companies don't have a strong presence because no investment has been put in since the war,'' said Saman Kelegama, executive director at the Institute of Policy Studies in Colombo. ``Lanka IOC, even if it's Indian, won't be a problem because people in Jaffna really need essential services.''

The Jaffna peninsula, at the island's northern tip 30 kilometers from India, faced regular power and fuel shortages during the civil war. The city was only accessible by plane or boat during hostilities, which lasted from 1983 to February 2002, destroyed infrastructure like fuel storage tanks and petrol stations and left as many as 60,000 dead.

Lanka IOC, which appointed top Sri Lankan cricketer Muttiah Muralitharan to promote its brand last year, aims to capture half of the retail fuel market from Ceypetco, whose monopoly was broken up by the government in 2002.

Ceypetco

Maavai Senathirajah, a resident of Jaffna who commutes the 14-hour drive to Colombo once a week, says price would decide whether he buys gas at a Lanka IOC outlet when it opens in his hometown.

``If they can offer at a lower price, then of course I will go there,'' said Senathirajah on June 24. ``Lanka IOC being an Indian company doesn't matter, if they have good service.''

The truce, which ended daily curfews and security checks, has boosted car sales. New motor vehicle registrations rose to 223,842 last year from 181,502 in 2003, the Central Bank of Sri Lanka said in its annual report.

Sri Lanka needs to secure a permanent peace agreement with Tamil rebels to attract investment to the country, Peter Harrold, World Bank Country Director for Sri Lanka said yesterday.

``Moving into the north is good as long as the war is over,'' Namal Kamalgoda, who manages $145 million in stocks and bonds as chief investment officer at Eagle NDB Management Co. in Colombo, the island's biggest fund, said on June 23. ``The big problem is Lanka IOC is in a tight cash-flow position but I don't think that would disrupt their expansion plans.''

Funding

Lanka IOC, which is owed $53 million in fuel subsidy payments by the Sri Lankan government, will fund the $10-million expansion from internal reserves, Nageswaran said. The Indian company is borrowing from Standard Chartered Bank, the state- controlled Bank of Ceylon and Citibank N.A., to fund its day-to- day expenses.

``We have borrowed $40 million and we are paying interest at 10 percent,'' Nageswaran said, ``If we get paid, we will give out an interim dividend.''

Lanka IOC shares have risen 20 percent this year on the Colombo Stock Exchange while the Colombo All Share Index, the world's 9th best performer, has gained 34 percent.

Lanka IOC's Nageswaran is unlikely to be able to fulfill the company's ambition to open gas stations all over Sri Lanka. Rebels control areas in the north east captured during the war. They run a fuel distribution network in Kilinochchi, a city of 30,000 people 65 kilometers south of Jaffna, which is also the birthplace of Tamil Tiger leader Velupillai Prabhakaran.

Tamil Rebels

``We have our own cooperatives and they buy fuel from Ceypetco but they operate their own network in our territory,'' said Daya Master, spokesman for the Liberation Tigers of Tamil Eelam in a telephone interview from the Kilinochchi headquarters on June 23.

Master said the rebels wouldn't allow Lanka IOC or other oil companies to operate in rebel-held territory.

``If they are opening in Jaffna, we have to see what their policy is going to be. We will look into the matter.''


To contact the reporter on this story:
Renee Lawrence in Colombo, Sri Lanka at rlawrence7@bloomberg.net

Last Updated: June 27, 2005 20:09 EDT


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