Shell Gas Lanka Ltd, a unit of the giant Royal Dutch/Shell Group, has found its investment in Sri Lanka more difficult than initially anticipated, its country chairman said yesterday.

Despite enjoying a five-year liquified petroleum gas supply monopoly that ended last year, the firm has accrued losses on its $145 million investment, which makes up about 10 per cent of the group's global LPG business assets.

Roberto Moran, chairman of Shell Gas Lanka, said that while investment was a small one for the group, the company was not going to raise its 51 per cent stake by bidding for the remaining shares put up for sale by the government this week.

"There is no appetite within Shell to increase its stake due to the low return," he said in an interview. Figures released on a government website this week showed that the unit had a return on equity of about 16 per cent in 2000.

"Typically, the LPG business gives about 20 per cent to 30 per cent return," Moran said. When losses at a subsidiary that built a storage facility for LPG are included, the group had accumulated losses, he added. Moran also said there would be slight negative growth in volumes this year due to all-round higher costs of living.

The company has been maintaining volume growth of about 15 per cent annually. The group has also had to cope with public complaints over price increases. It has had to raise the price of a cylinder of gas at regular intervals to keep up with a depreciating currency that raised the cost of imported LPG.

Moran said they were looking to hike prices by another 15 percent, after raising them by more than eight percent in December. "We need to increase prices, and we intend to do so within the next few weeks," he said.

With the market being opened up, competition is also expected to pick up. While Shell Gas Lanka has a strong advantage as the first entrant into the market and due to a large investment in storage terminals, the company is urging authorities to set up a regulatory body to ensure that new entrants do not undercut the firm unfairly.

"In the privatisation agreement, we are commited to allowing competitors to get access to our terminal and obtain LPG," Moran said. Petronas Gas, part of Malaysian state oil company Petroliam Nasional Bhd, is known to be looking at a joint venture worth about $5 million with state-owned Ceylon Petroleum Corp (CPC) to distribute LPG in the island.

CPC produces around 10 per cent of the country's demand for LPG at a cheaper rate than that currently sold by Shell Lanka. According to a government privatisation website, Shell Lanka had turnover of Rs4.4 billion ($48 million) in 2000, up 30 per cent from the previous year, and sales of 145,000 metric tonnes of LPG. It had net earnings of Rs69 million, down from Rs264 million the previous year, and assets of about Rs4 billion.