Admitting that improving an organization’s business prospects in the current economic climate would not prove easy, Gomes singled out political instability as a barrier to invigorating the country’s business sector. Said Gomes: ‘I believe we have some politicians with good brains and sound knowledge, but in this political culture they cannot do what is right for the country. They need to survive as politicians; that is where the issue is. For these brainy politicians to have a say, there has to be political stability. It’s because we do not have political stability that we are confronted with all these issues’.

Excerpts of interview:

They have impacted us to a great extent. First, we being a business operating within the petroleum industry, with the crude oil prices going up, our raw material prices too have gone up. For example, base oil prices, from about 700 $ per metric ton have gone up to 1500 $ per metric ton – it’s almost a 100% increase. That is a huge challenge and with that all the petroleum-based products have risen in price. For instance, plastic which is a by product of petroleum, which we need for packaging, has gone up in price and additives as well. These too are petroleum-based products.

Locally, obviously, we are feeling the pressures of high inflation. At present it is about 25% real inflation, meaning the cost of operations here has gone up. This we feel very badly and under that the cost has risen steeply along with the people cost. We have had to revise the salaries of our employees at all levels over the past three years and our cost on this score has gone up 50%. So, there are a lot of challenges in terms of the operational environment.

Currently, the lubricant companies are of two categories. One is where people bring in the finished product and sell and the other is basically bringing in the raw material and doing the manufacturing process here and selling. Under the second category we have two companies – ourselves and IOC. Obviously, IOC is not manufacturing everything here still. They are doing 60 or 70% or are somewhere there. We as local manufacturers pay 54% taxes. Those who import and sell pay 61%. So, between finished products and raw materials there is only a 7% gap which is insufficient to justify someone making a local investment. That is another issue we need to talk about. But talking about challenges, that is a huge one. Sixty per cent product cost is duties and taxes.

Accordingly, for the 2007 calendar year, we paid more than Rs. 2.5 billion in taxes and this year our estimate is Rs. 3 billion for government coffers. We are really proud of that; that is, making such a big contribution to the Lankan economy and apart from that we are also into exports. But having said that, all these are challenges and due to the war certain markets are totally inaccessible. We have no access to Jaffna, some areas in the Eastern region. Normalcy is said to being restored in the latter areas but life there is far from normal. Economic activities are not on. Therefore, we are not getting the correct sales from those areas. It applies to all other companies as well.

The good thing is that we entered into a few export markets a couple of years ago. The Bangladesh strategy is working beautifully and we have made good progress there. In the Maldives, we have had the right volumes and right markets. Here, with all the restructuring we have gone through, with all the right strategies we have, we have had to manage costs and run the operation very efficiently. With that we have been able to mitigate some of the challenges to an extent.

But this year we have seen a 10% decline in the lubricants industry. In the LPG business there has been a 9% decline. So these are not good signs. And while we are a listed company with a 49% public share holding, the majority share holder is the US company Chevron and when Chevron buys raw materials they do so for the entire world; for the 186 countries. Therefore, we as an entity do not go to the world market and buy our requirements. If we were doing that we would have to pay a very high price. So, we have synergies coming our way, thanks to our ownership structure. That way, we have been able to show a business performance.

What I understand is that in 2006 the vehicle population growth hit 35% for several months and in the latter part of the year it came down to 11%. Last year it was below 10%. This year the growth rate has slowed. This we have very clearly seen with duties going up. Recently also the government increased the duty by 150%, wherein the price of a 1000 cc, 2500 cc car went up from Rs. 250,000 to Rs. 500,000. So, obviously, even the smaller vehicles have become unaffordable for a certain social segment. That is there on the one hand. On the other, those who have vehicles do not run them that much because they do not have a satisfactory income to run their vehicles. So, in this highly commercialized society where lifestyles have changed with people becoming exposed to various media, they want to have a car at home. They buy the car taking a loan or whatever and spending their savings, but they cannot run the vehicle on a daily basis. They park their cars at home. That is why we do not see the same level of traffic in Colombo and even in the outstation areas. Crude oil is a commodity we do not produce here, so obviously, when there is a global crisis you need to respond by cutting on consumption. The economy has to get adjusted to that challenge. This is not a complaint but this is the reality.

Apart from that, in the commercial industrial market, we have not seen that much expansion happening as in the past. So the lubricant industry cannot think of incremental volume. Consumption has lowered. Some local companies, with costs going up, have found it difficult to fight with other countries where things are cheaper. We have become a very expensive destination in relative terms within this region. This is something we need to recognize and respond to.

It is not an easy thing to do. We face quite a few challenges. The energy crisis is one. Food is another. Then there is the military expenditure. There are natural disasters from time to time in our country, for instance, floods, earth slips – there are so many issues.

The other important issue is political instability, where, while most people blame politicians, I do not blame them. I believe we have some politicians with good heads and sound knowledge. But in this political culture, they cannot do what is considered right for the country. They need to survive as politicians. That is where the issue is. For the brainy politicians to have their say, there has to be political stability. It is because we do not have political stability that we have all these issues.

We need a long term perspective where we will have the right policy. Under that while we need to encourage local companies and local value addition, in areas where local companies cannot succeed, where local businesses cannot acquire the necessary raw material, expertise, resources, etc, foreign investment must be encouraged. That way we must face the world.