Contents

Acknowledgement.................................................................................................................................2
Task 01 Different type of Organizations.............................................................................................4
Task 02 Sri Lankan Economic System................................................................................................9
Task 03 Market Environment............................................................................................................14
References...........................................................................................................................................20

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Acknowledgement
I am using this opportunity to express my appreciation to everyone who supported me
throughout the assignment. I am thankful for their aspiring guidance, invaluably helpful and
friendly advice during the assignment work. I am sincerely grateful to them for sharing their
truthful and illuminating views on a number of issues related to the assignment.

I express my warm thanks Business Environment lecture as guiding and support in various
way to success to complete this Module.

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Introduction for Ceylon Petroleum Cooperation

The Ceylon Petroleum Corporation was established in 1961 state enterprise in parliament.
Their main objective was import, refining, selling and distributing petroleum product in Sri
Lanka.

Vision and Mission statements of Ceylon Petroleum Cooperation

Vision
To be the premier customer driven, environmental friendly, enterprise in the petroleum and
related industries in the region while contributing towards the prosperity of our nation.
Mission
To achieve excellence in refining, sales and marketing of high quality products and meet the
expectations of the stakeholders through a dedicated team of professionals and a loyal &
efficient dealer network and by providing total solutions and services exceeding customer
expectations, while utilizing a high technology base for growth and development of the
enterprise with total employee participation and innovation, by maintaining high ethical
norms in all its activities and with highest concern for health, safety and environment.

Task 01 Different type of Organizations

1.1 Compare the purpose of different types of organizations such as private
company, public company, government, voluntary organization,
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charitable, cooperative etc. P1.1
Types of organization classify as following,

Organizations

Private Sector

Sole Traders
Partnership
Joint Ventures

Public Sector

Government Departments
Government Corporations
Government Companies

Companies
Clubs & Societies

(Own Work)

Private Sector
The private sector organization that are not owned or operate by the government. Its divided
as Sloe Traders, Partnership, Joint Ventures Cooperatives and Clubs.
Sole Traders are the individual makes the capital contribution and conducts the business on
his own decisions making within the minimum of legal procedures.
Advantages of Sole Tradership
Commencement is easy. With minimum of capital and minimum of rules and regulations,
business could be started.
Profit can be share individually.
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Independent decisions can be made.

Disadvantages of Sole Tradership

Liability is unlimited
Lack of capital
No legal personality.

Partnership which is two or more individual manages and operates the business. There are
easy to start, can collect more capital and decisions are made collectively.
Advantages of a Partnership
Easy to start. Can collect more capital.
Liability is divided among many persons.

Disadvantages of a Partnership
As the liabilities are unlimited even the personal property of a partner is bound under the
liability.
Difficulty of implementing the decisions at ones own discretion.

Joint Venture builds up for short period of time for the purpose of achieving a specific
purpose. In this the name of the business is not used. Once the expected purpose is achieved
the joint venture gets closed.

Companies are classified as Private limited and Public limited. Private Limited Company
should be incorporated organization which cannot sell in public by issuing a statement its
shares to the public. Maximum shareholders are 50 and liability is limited. Ex: Ceylon Pencil
Co. (Pvt) Ltd, EAP Holdings Limite, Sonit Cab (Pvt) Ltd.
Public Limited Company is one which can offer shares to the public which can purchase them
openly. There is no limitation for shareholders and shares can transferable. Ex: In Sri Lanka
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there are having public limited companies like Cargilis Ceylon PLC, Palawaththa Sugar
Industry PLC, Abans, and Hayleys Group.

Public Sector
The public sector is usually composed by the organization that is owned and operates by the
government. Ex: Municipal Council, Voluntary Organization, Charities, NGO and there are
having some companies in Sri Lanka operate by the government Sri Lanka Rubber
Manufacturing Export Co, Department of Labour, Central Bank of Sri Lanka, National
Institute of Education
Voluntary Organization is the organization that renders service without any payments. Non
profitable. Their doing for social works and they gets donations from outsiders. EX: United
Nations Volunteer program in Sri Lanka is the UN organization that contributes to peace and
development through volunteerism worldwide.
Charitable Organization is type of nonprofit organization. They focus on educational,
religious, or other activities serving to the public interest. Use profit or surplus only for the
organization purpose.

1.2 Describe how CPC meets the objectives of the various

stakeholders P1.2
CPC stakeholders are the many individuals and organizations who are affected in some ways.
They have a direct and indirect interest in the business and contact with the business daily or
occasionally.
Stakeholders are,

Employees
Customers
Suppliers
Government
Directors
In a company there are having Internal and External stakeholders.
Internal stakeholders are groups within a business or people who work directly within
the business, such as employees, owners, and investors. Employees want to earn high
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wages and keep their jobs. Owners are interested in maximizing the profit the
business makes. Investors are concerned about earning income from their investment.
External stakeholders are groups outside a business or people who are not directly
working within the business but are affected in some way from the decisions of the
business, such as customers, suppliers, creditors, community, trade unions, and the
government. The government wants the business to pay taxes, employ more people,
follow laws, and honestly report its financial conditions. Customers want the business
to produce quality products at reasonable prices. Suppliers want the business to
continue to buy their products. Creditors want to be repaid on time and in full. The
community has a stake in the business as employers of local people.

Stake holders
Employee

Expectations

Customers

Suppliers
Government

Directors

Fair remuneration that

encourages people to
perform well
Work Place safety
Motivations
Job Security

High quality safe

product
Product availability
Competitive pricing
Payment on time
Long term contract
Tax
Operate legal
Job opportunities
Reliable and sufficient
reporting

How CPC Response to

expectations

Management and leadership

development
Performance developments
Making good working
environment
Health care
Salaries and benefits
Continuous development
Word of mouth
recommendations
Making good revenue
Pricing quality
Product availability
Regulations
Taxations
Planning
Make decisions for officials
on matters affecting CPC
industry

For Employees they have to manage their employees giving management and leadership
programs to develop their leadership skills, giving them a good salaries and benefits
insurance, and make the good environment to woke so they will satisfied the job. Customers
CPC have to develop their product for customer satisfactions. From Suppliers CPC expecting
the good quality products and the product availability on time to give the good service to the
customer. CPC must follow the government ruls and regulations, pay tax in write time.

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1.3 Explain the responsibilities of CPC to meet the stakeholders objectives
and the strategies it uses to fulfill them P1.3
The CPC has to set objectives that are realistic to its business and employees that can enable
them to perform tasks that meet their set objectives, aims, missions, values, and strategies.
There are having some responsibilities of the organization like, Management Responsibilities,
Organization responsibilities, Environmental responsibilities and Social Responsibilities.
Management Responsibilities
Employees
CPC give best way to full fill their objectives. They provide all type of employees with new
opportunities including local and overseas training to ensure their best. The training and
development have become key priority in developing human capital to achieve technical and
managerial abilities to provide skills and competence of human resources of the Corporation.
Customers
CPC ensure produce good product to the customers in fair price. And they can attract new
customers for CPC products, give them best quality product than the competitors.
Suppliers
Ceylon Petroleum Cooperation ensures that they have a good and effective two-way system
communication with their suppliers. This helps to ease consultation procedure and control
their policies to their suppliers.
Ex: Chinese manufacturers, who supplied fuel dispensing pumps not up to the CPCs
standards and specifications, were brought down and got all required spare parts free of
charge by holding on bank guarantees given by them. As a result of this exercise, CPC saved
a substantial amount of money. If not CPC would have imported these items from the
suppliers by spending a huge amount of money.
(CPC Annual Report)

Government
CPC was set up as a parliament act, CPC follows laws and regulations set by the government.
The governments expect paying tax on time and contribution toward the economic
development and providing job opportunities to solve the unemployment problems.

Task 02 Sri Lankan Economic System

2.1 Explain how the Sri Lankan Economic System attempt to allocate
resources in the Country P2.1
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The economic system of the world is divided in to three categories according to their method
of solving basic economic problems.
Market Economy
Planned Economy
Mixed Economy

Market Economy
If an economy clearly exhibit capitalist features as opposed to a planned economy it is known
as a Market economy.

Characteristics of a Market Economy

Private Ownership of property

There is an inequality of economy
All economic decisions are based on market price

Planned Economy
These are the economic which posse more socialist features as compared with capitalist
characteristics. Now there is having few countries such as Cuba, North Korea practice
Planned economy.

Characteristics of a Planned Economy

State ownership of resources except labour.

No significant income disparities.
Resources are allocated though a central planning process

Mixed Economy
They are economics in which a strong private sector exists alongside with strong government
enterprise. Mixed economic countries are Sri Lanka, India, Pakistan, Philippines, Malaysia
and Indonesia.

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The way in which the resources of a country are used to produce goods and services, and the
manner in which these goods and services are distributed is referred as an economic system.
Particular country could adopt market, command or mix of those economic systems.
Accordingly, Sri Lanka can be classified as a mixed economic system where both free market
forces of demand and supply and the government make economic decisions as follows,
What to produce
Price mechanism which is determined as a result of the interactions between market
demand and supply directs the market to decide what to produce. Hence, the private
sector tends to produce based on the profit motive. However, Sri Lankan government
intervene the market decisions to maximize the welfare of the general public.
Ex:
- Regulation of industries such as telecommunication sector through
telecommunication commission, transport sector through national transport
commission in order to ensure for the wellbeing of the public
- Providing incentives to encourage the private sector to allocate resources for
sectors which are strategically important for the economy- tax incentives such as
concessionary tax rates, tax holidays and non-tax incentives such as infrastructure
facilities are provided.
How to produce
As a developing country, Sri Lanka has more idle labor resources compared to capital.
Therefore, private sector tends to be more labor intensive in most of the industries.
However, the government has imposed laws and regulations such as shops and office
employees act, commitments for EPF and ETF to protect employees rights.
Further, the government continues to expand the public sector recruiting more
employees in order to reduce the unemployment.
For whom to produce
Private sector produces only for those have purchasing power and discriminates prices
accordingly. Again the government intervene the market to reduce the resulting
disparity of income playing the redistributive function in the economy as follows.
-

Imposing progressive income taxes

Cash transfers such as Samurdhi

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2.2 Explain how the Monetary and the fiscal policy of the Sri Lankan
Government affect CPC P2.2
Actions taken by Central Bank of Sri Lanka over money supply affecting interest
rates are known as monetary policy. Monetary policy is maintained through actions
such as increasing the interest rate.
The governments decision over the budget that is taxation and public spending is
referred as fiscal policy. When the government decides on the goods and services it
purchases, the transfer payments it distributes, or the taxes it collects, it is engaging in
fiscal policy.
When there is an expansionary monetary policy, the increase in money supply lowers
the interest rate of the economy due to excess supply of money balances. Decrease in
interest rates would lead to increase the aggregate demand of the economy and affects
CPC as follows.
- Lower interest rates encourage CPC to increase its investments as it can demand
more loans at a lower cost. These investments may include upgrading the refinery
process.
-

It will increase total imports of the economy. People will tend to purchase more
luxury goods such as motor vehicles and businesses may expand their production
facilities compelling CPC to import more crude oil to be used as inputs. High
imports will depreciate the exchange rate increasing cost of crude oil in Sri
Lankan Rupee terms. However, increased demand for CPC products would
continue to increase its losses unless the increased unit cost due to exchange rate
depreciation is passed to its customers.

On the other hand, expansionary fiscal policy will increase government spending and
the budget deficit. This would increase the aggregate demand and the interest rate of
the economy. Therefore, expansionary fiscal policy will create opposite impact on the
interest rates although it helps to achieve growth objectives increasing the output.
Higher interest rate discourages investments of CPC and increases crude oil imports.

2.3Evaluate the impact of competition policy and other regulatory

mechanisms on CPC P2.3
The degree to which a market or industry can be described as competitive depends in part
on, how many suppliers are seeking the demand of consumers, the ease with which new
businesses can enter and exit a particular market in the long run. Highly competitive
markets are where there are many sellers pure monopoly where a market is dominated by
one single supplier.
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In terms of Sri Lanka, they followed a policy of consumer protection through consumer
subsidies and price control other than following apolicy of promoting competition
through competition law and policy. Where CPC had a monopoly market in the petroleum
market. Though it had a monopoly as government is controlling its operations CPC could
not achieve a maximum profit. But with the change of this policy CPC lost its monopoly
in the industry.
Ex: for CPC competitors
GAS Companies Letor Gas & Laugh Gas Companies
Petroleum Competitors are IOC
The full ownership of Shell Gas Lanka (Pvt) Ltd was handed over to the Government in
November 2010, forming Litro Gas Lanka Limited (LGLL). Sri Lanka depends on
imported LPG to bridge the growing gap between demand and the limited local
production by Ceylon Petroleum Corporation's (CPC) Refinery in Sapugaskanda. To meet
this demand, the Government also took steps to purchase the Shell owned LPGStorage
Terminal situated in Kerawalapitiya
CPC had its monopoly power in petroleum industry in Sri Lanka until late 2000 where
Letro Gas and Laugh Gas entered into the market. And then Lanka Indian Oil Corporation
Ltd. (LIOC) entered the market in 2003 which created a duopoly in the fuel market. This
increased the competitiveness as other competitors were filling the gaps which CPC could
not fill. This was a threat to CPC in terms of quality and price of the products. However,
CPC whilst being one of the market participants, still retain certain regulatory functions
under the CPC Act, which an inherent conflict of interest creating an uneven playing
field.
CPC have been able to dominate the market and its market share for some petroleum
products by 2011 is as follows.
Petrol
Diesel
Kerosene

80%
95%
100%

Due to these reasons CPCs competitor was unable to have a significant influence over
CPC. LIOC can revise its prices on its own or it can follow the state backed CPCs price
revisions. However, present terms due to the CPCs management and operational
inefficiencies LIOC continues to expand its market presence in Sri Lanka. As an example
presently LIOC is asking to take over around 130 stations which are owned by CPC.
Therefore the impact of the competitor can be more aggressive in the future.

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Task 03 Market Environment

3.1 You are the Marketing Manager of CPC; explain the pricing policy of
the company and how it is governed by the Government Policy P3.1
An organization has various pricing policies when promoting a goods or services. Pricing
policy is the important for organization to make the product or service in the good market
value and it becomes the company profits.
Being a state owned cooperation, CPC does not follow either competitive pricing policy
where CPC is required set its prices in line with its major competitor (LIOC) or cost based
pricing where pricing should be based on world crude oil price trends.
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As a small open economy, Sri Lanka faces a perfectly elastic demand curve for crude oil in
the world market. Hence, CPC cannot have an influence over world market prices through
adjusting its demand. So, it is considered as a price taker who is able to purchase any amount
for already determined prices in the market. CPC has the superiority in this industry so when
the price is decided the IOC has to follow the price or rather change the price that is even
higher than CPC price. If IOC tries to reduce their price in the petroleum industry the risk for
price war with a lower cost will threaten their survival in the market.
Being a price maker, CPC is subject to wide fluctuations in the world market and it continues
to absorb losses arising from those fluctuations. Sri Lankan government forces CPC to charge
subsidized prices from its customers irrespective of the cost.
The extent of subsidy provided is different from products to product based how important
each product is for standard of the people and its impact on the economy especially on price
level.
Prices/ Cost of Key Petroleum Products (Rs/lt) - February 2013
Price

Cost

Profit/(Loss)

Margin

Octane 90

162

148

14

8.64%

Diesel

121

133

-12

-9.92%

Kerosene

106

128

-22

-20.75%

65

102

-37

-56.92%

Fuel oil

Source: Treasury Report on State Owned Enterprise

As per above tables and graphs, it can be observed that the government has directed directly
or indirectly (through taxes) to price some products profitably and some at losses.
Octane 90 is priced at a profit as it is mostly used for luxury vehicles. On the other hand, loss
from Diesel is due to its usage for public transport. As low income people especially those
from estate sector in upcountry use kerosene as an alternative for electricity it has been priced
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at a loss. Largest losses come from fuel oil which is used for generation of electricity which is
also subsidized (average unit cost: Rs 15.59 against selling price of Rs. 13.22).
Therefore, it can be concluded that government regulates CPCs prices in a manner which
reduces the disparity of income of the country.
When the sri lanka use fiscal policy the taxes which they have announced in the economy
cannot be adjust immediately. The tax rises in year consumption for petroleum will decrease.

3.2Analyze and state how market forces CPC to respond in situations and
give examples P3.2,
Market forces are Demand & Supply. Demand refers to the quantity of a product that the
consumers are willing to buy at different prices which are determined by the market.
There are some factors affecting to the demand of the product.
Own price of the product. This is the main factor which affects the quantity demand.
Price of other competitors Ex : IOC price.
Consumer Income

Price
20

Increasing in demand
Decreasing in demand

15
10
5
D2

D1
Quantity
(Demand Curve - Own Work)

400
100 200 300
0
0 or decreasing
0
A change in demand is0 an increasing
in demand caused by a change in any

factor affecting demand expect the products own price. The market price of the CPC
products is assumed to be stable. Increasing of the demand is indicated by a shift of the
demand curve to the right, and a decreasing in demand is shown by a shift of the demand
curve to the left.
Supply is the quantity of a product that the suppliers are willing to offer for sale at
different prices prevailing in the market at a particular time.

Price

P
3
P
2
P
1

Supply

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Quantity

Q
1

Q
2

Q
3

(Supply Curve - Own Work)

The law of supply state is the all other factors remain stable, when the price increase the
supply of the product will increase. When the price decrease the supply of the product
will decrease.
The supply curve is upward sloping because, all else being equal, as the price of a good
rises, people are willing to sell a greater quantity of the good.
When government introduces TAX for the market the Ceylon Petroleum Corporation has
to pay tax to the government. So they increasing the price of the Oils it will decline the
amount of demand for the petroleum.

Price
S1
S
4
0
3
0
D
0

Quantity

(Own Work)

10 equilibrium price prior to tax was Rs. 30/-. The

The diagram above shows that the
00Rs. 15/- per unit. As a result the supply curve has
government has imposed a tax of
shifted to the left s1.
Even though CPC is subject to rigid decisions of the government, there are some
situations where CPC had to respond for market forces.

Growth Rate (%)

Year
Petrol

Diesel

Kerosene

Fuel Oil

2000

32.49

79.46

5.03

26.04

2001

7.07

2.64

-3.67

-0.68

2002

21.13

0.73

11.05

9.91

2003

10.85

-6.46

-27.52

-14.76

2004

12.52

21.43

28.38

-0.71

2005

27.54

19.39

-6.71

68.68

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2006

-5.78

4.19

-3.23

-13.81

2007

16.29

4.05

-34.91

-10.11

2008

4.75

-9.59

-5.93

0.68

2009

0.05

-1.65

9.2

16.33

2010

18.21

4.21

-23.56

-6.84

2011

15.47

15.99

0.13

9.14

Sources : Ministry of Petroleum Industries (http://www.petroleummin.gov.lk/)

As per above table, the demand for kerosene is declining as people tend the give up the usage
of kerosene as an energy source and it is replaced by electricity. However, some industries
such as tile industry continued to use kerosene for their plants it is sold at subsidized prices.
In response to these changes in the market, CPC decided to revise its prices upwards.
In October 2012, LIOC decided to increase its prices of Diesel to Rs. 121/ per litre
considering the market demand and the cost while CPC was remaining at Rs. 115/- per litre.
Considering the price disparity between two players in the market, CPC decided to revise the
price in Price parity was re-established in February 2013.

3.3 How do you expect CPC to shape its operations in compliance with Sri
Lankan culture and prevailing business environment? P3.3
Political Environment
As a state owned enterprises, the influence of the government is inevitable. While
government treasury continues to reimburse CPC losses, non- commercial objectives
of the government such as public welfare, increasing employment has created those
losses for CPC. On the other hand, CPC continues to provide fuel for state owned
enterprises such as Ceylon Electricity Board, Sri Lankan Airlines, Mihin Lanka at
subsidized prices and on credit.
CPC needs to set a pricing formula based on world market prices and the government
involvement is essential to ensure it is followed by everyone. Further, CPC needs to
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reach commercial agreements with state owned enterprises to avoid losses from
transactions with them
Economic Environment
CPC operations are affected by domestic as well as global economic conditions as
CPC is based on an imported product. For example, Sri Lanka had to depend on high
cost crude oil from Saudi Arabia, Oman etc due to US sanctions on Iran. Due to this
there is a limitation in supply or the supply party can heavily force or influence on
CPCs operations as It is highly depended on the foreign suppliers. The independence
of CPC is in a threat due to this. For an example if Saudi Arabia increased the price of
crude oil CPC will have to accept it without going against due to this dependency on
imported oil. And another reason for this is that we are being a small portion in their
total demand so the influence we can do is very lower than their other customers.
Increasing the number of suppliers is a one solution for avoiding this situation. But
this might not be possible due to two reasons. One is the economic condition in Sri
Lanka and the other is the limited supply in global petroleum market. Quality issues
also can arise in this circumstance.
Further, movements in exchange rates also affect CPCs performance. This is because
CPC is mainly depending on imports. As currency depreciated the cost of imports
increases which negatively impact for CPC in terms of profit. As government
influences for CPC to have low prices most of the times which will not let CPC to
cover its costs. This will lead to inefficiency situation in CPCs operations. And still
CPC had the opportunity to adjust price according to their costs the demand will be
decrease because prices will be very high due to the impact of depreciation in Sri
Lankan rupee.
Exchange rate impacts cannot be controlled by CPC. It needs to be controlled through
market itself. In order to face this situation CPC can minimize the other costs which
are not essential. Further as above mentioned CPC should set a pricing formula in
order to decide the prices of their products.
Social Environment
CPCs pricing policy is focused towards reducing difference of income of the country.
However, changes in life styles of the people moving from kerosene to electricity
have compelled CPC to rethink about its subsidy. CPC can suggest the government to
provide a kerosene subsidy only for needy ones instead of charging subsidized prices
from everyone.
Technological Environment

Crude Oil & Refined Petroleum Product Import Ratio

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Product

199
0

2000

2010

Crude Oil

91.5

55

35

Imported Refined
Petroleum Products

8.5

45

65

Source : CPC Annual Report

As per above table, the amount of refined petroleum product is continuously
increasing as a result of technological limitations of Sapugaskanda refinery. This
needs to be addressed with required investments on technology to minimize losses.

References
Ceylon Petroleum Corporation. 2014. Ceylon Petroleum Corporation. [ONLINE] Available
at: http://www.ceypetco.gov.lk/. [Accessed 03 September 2014].

Cadbury.2014. [ONLINE] Available at: https://www.cadbury.co.uk/. [Accessed 29

September 2014].

Difference Between Monetary and Fiscal Policy | Economics Help. 2014. Difference Between
Monetary and Fiscal Policy | Economics Help. [ONLINE] Available at:
http://www.economicshelp.org/blog/1850/economics/difference-between-monetary-andfiscal-policy/. [Accessed 25 September 2014].

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Pricing Policy and Strategy - levels, advantages, company, disadvantages, business, Costbased pricing. 2014. Pricing Policy and Strategy - levels, advantages, company,
disadvantages, business, Cost-based pricing. [ONLINE] Available at:
http://www.referenceforbusiness.com/management/Or-Pr/Pricing-Policy-and-Strategy.html.
[Accessed 28 September 2014].

PEST & PESTEL Analysis | Strategic Management Insight. 2014. PEST & PESTEL Analysis
| Strategic Management Insight. [ONLINE] Available at:
http://www.strategicmanagementinsight.com/tools/pest-pestel-analysis.html. [Accessed 29
September 2014].

Sri Lanka Overview. 2014. Sri Lanka Overview. [ONLINE] Available at:
http://www.worldbank.org/en/country/srilanka/overview. [Accessed 03 September 2014].

Class Notes

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