How Caltex lubricates the wheels of the national economy

Lynn Ockersz

In the petroleum products business, value - addition technologies are introduced to the market on almost a monthly basis.

Some of these products are complete packages which aim at giving the buyer a 'consumer experience' which ensures the satisfaction of a range of his requirements.

Caltex Lubricants Lanka Ltd. Managing Director Kishu Gomes in this interview sheds light on the role played by value - addition products in the business success achieved by his organisation besides taking up a range of other issues of relevance to the petroleum lubricants field as well as the national economy.

Q: What are Caltex's latest value - addition products ?

A: From time to time we come up with new technology in keeping with where the original engine manufacturers are heading in terms of engine fundamentals. In keeping with that we do numerous researches and develop new products.

Whenever globally we discover anything they are brought to Sri Lanka as well and we supply those products. In the recent past we have developed a product called Delo Gold with what is called Iso-sin technology. That is the latest diesel oil technology available in the world.

On the power generation side we have introduced some new products with new formulations etc. For us in this industry, value-adding products are almost a monthly thing.

Every month there is something new that comes up. In bringing value-addition to the consumer in terms of product proposition, in terms of total value proposition, we have a complete package. For example, in the retail sector we try to give the consumer a 'consumer experience' rather than just selling products.

That's where we have come up with the Starloom concept where a consumer has to only take the vehicle to the service station and the latter is geared to advise the customer on the right product application etc.

We have what is called an 18-point check where we not only look into the requirements of the engine but look at all the other things as well. Such as brakes, to alignment, radiator to everything else. The beauty of that is that we try to do it within a short period of time. Those days, taking the car for a service was a whole day activity.

You go to the garage in the morning and come back in the afternoon. Here, with the technical expertise these people have, all you have to do is spend one to one and a half hours maximum and go back happily with your car.

These are well kept places with air conditioned waiting rooms and TVs, Internet facilities, magazines to read, the whole works.

Q: Would you consider your business prospects favourable at the moment, given the high oil prices?

A: Well, it has been a challenge, not only now but over the past three years, when the prices of crude oil started to move up from $35 a barrel to where it is today. In keeping with that trend we have also found the prices of the core room material for lubricants also going up.

The raw material there is actually based on it, which is a by product of the refining process. That has basically followed the same trend and that has been a challenge but fortunately for us we have been able to minimise the impact to the consumer by being able to look for synergies within the operation.

That way we have been able to keep the price increases to a minimum. As a result, we have been able to sell the right volumes at the right gross margins and today we are a successful business organisation.

Q: Do you see your market as growing ?

A: The average growth in the lubricants market over the past 12 years has been around 4 percent. There have been years when it grew by seven to eight percents. It took a dip as well in 2001 when we experienced an economic recession, when the GDP was - 1.5 percent. We then saw the industry declining. But we have two broad market segments: the retail market and the commercial industrial market.

In the retail market it is a case of, say, vehicle owners buying their individual requirements. But in the commercial industrial market it is the power plants, railways, Transport Board, Ports Authority, supplying products to ships and supplying products to rubber processing companies etc.

Forty percent of the solid tyre requirement of the world is manufactured in Sri Lanka. Such customers buy different lubricants for their manufacturing processes. So, that is the commercial industrial market.

So, if you look at the two markets, the commercial industrial market grows at about 15 percent and the retail market by only one to two percent. That's why the average is about 4 percent. So, if you talk about the future it would be in the commercial industrial market, and to achieve economic prosperity as a country we need foreign investments.

So, investors would come over have, put up their plants etc for what we have here is skilled labour and this is what European countries are looking for. We are still competitive in terms of salaries etc. That will basically drive greater growth in that sector.

We also know the supply and demand situation is not very great. Currently, they say only 60 percent of the power demand is met, and there is so much potential out there in the market. So, how can you meet the demand ? Well, coal power may be the long term solution and LNG but these are long term investments. If you take the decision today, it will be five years before we start generating power to be able to sell it.

So, in the interim, what do you do? Well, the solution is thermal power. There has to be thermal power investment. And thermal power consumes fuel oil and lubricants. So, that's where we see the opportunities.

Q: Anything you wish to tell the State?

A: What I wish to tell the State is; have long term policies. That is of concern to not only us in this industry but for all industries alike. The State should have policies which would last a considerable period of time regardless of who comes to power.

Long term policies have been lacking and as a State, you need to have one voice and not different people advocating different principles and theories. So we need one common voice with a consensus among the parties concerned. That can do wonders not only for the existing investors but potential investors as well.