"We're trimming down our operations due to anti-competitive practices by competitors who sell below cost."

Lanka IOC, a unit of Indian Oil Corp., has been accused of predatory pricing where fuel is sold below cost to drive competition out of business. LIOC is the newest supplier to enter the market after it was liberalised.

LIOC managing director K R Suresh Kumar told LBO they get their fuel by floating international tenders and that prices fluctuate depending on market conditions.

Variable Costs

In some jurisdictions, where predatory pricing is a formally outlawed, it has been defined as selling a product below variable cost. To recover fixed costs or overhead, a firm has to price its products at a margin above variable costs.

A firm competes by keeping overhead low, and procuring supplies as low as possible to keep variable costs down and not by selling below variable costs.

In general, larger buyers could command better prices.

"Of course, we do (make profits). No company would like to do business at a loss," Kumar said.

"It's a dynamic market and prices keep changing. What LIOC does is what every other player does. We don’t do anything different from other players.

"It all depends on the price at which you import, today’s price in Singapore and what price you’re selling at."

Ship fuel sales have improved steadily in recent months with the country situation improving, Kumar said.

The island’s 30-year ethnic war ended in May 2009, when government forces defeated Tamil Tiger separatists, leading to an economic revival.

Lower Volumes

But Reza said his company had reduced imports and was shipping in smaller parcels as it could not compete at current price levels.

"We want to wait and see how long they will continue with current price levels."

He said the company was also seeking legal opinion to take up the issue with the Consumer Protection Authority which is charged with ensuring fair competition in the market.

Reza said bunker fuel volumes sold in Colombo peaked in October and November when prices fell below that of Singapore but have fallen since then as imports were reduced.

Singapore is a big crude oil refining centre. Bunkers imported into Colombo have usually to be priced higher than Singapore because of the freight costs.

Industry officials said the bunker price war in Colombo helps shipping lines whose ships buy fuel reduce their costs.

Updated