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Crude oil: Questions over latest procurement

27 Mar 2022

  • Only UAE gave credit: Lokuge
  • Suspicions over part payment in rupees
By Maheesha Mudugamuwa An unsolicited proposal to import crude oil from the United Arab Emirates (UAE) for Sapugaskanda Oil Refinery operations has been rushed through the Cabinet recently, The Sunday Morning learns. In a Cabinet Memorandum submitted on 18 March 2022, seen by The Sunday Morning, Energy Minister Gamini Lokuge has sought Cabinet approval to enter a long-term agreement with Fortuity General Trading LLC in UAE. Accordingly, approval had been sought from the Cabinet based on the recommendations of the Special Standing Cabinet Appointed Procurement Committee (SSCAPC) to import a trial shipment of 700,000 barrels of UAE blend crude oil from Fortuity General Trading LLC. Responding to a query by The Sunday Morning, Energy Minister Gamini Lokuge defended the agreement with the UAE-based company.  When asked why the Ministry was using an unsolicited proposal to source crude oil, Minister Lokuge said that no other country had come forward to give Sri Lanka credit to buy crude oil, explaining that only UAE had offered a credit facility to Sri Lanka. “Regarding the unsolicited proposal, the issue is that no one was ready to offer Sri Lanka a line of credit for crude oil. Only the UAE came forward at this time of need. We asked them to send us a proposal and they did. The UAE Ambassador met with the President and discussed the proposal with him too. We have checked their credibility and awarded a six-month trial and we will evaluate the trial supply period, and if the Energy Ministry is happy, we will award them an extension,” Lokuge told The Sunday Morning. He would not elaborate on the details of the proposal. “No matter who we buy from, we have to pay the international market price for crude. We desperately need crude oil to recommence our Sapugaskanda Refinery,” Lokuge stressed.   The crude oil is to be imported for a credit period of 200 days in average prices of the Oman and Dubai Price Index for the first month, five-day average around the first day of the second day delivery laycan with a premium of $ 0.75 on 50% on payment at sight basis in Sri Lanka Rupees, and the remaining 50% in US Dollars by a transferable Letter of Credit within 200 days subject to immediately obtaining a report on due diligence on Fortuity General Trading from the Embassy of Sri Lanka in the UAE, according to the Cabinet Memo submitted by the Minister. Also, as per the proposal, 50% of cargo value of crude oil that should be paid to the supplier in LKR will be paid to an offshore company which is to be established in Sri Lanka by the respective supplier. Having analysed the documentation regarding the matter, The Sunday Morning learnt that Minister Lokuge’s proposal had been submitted to the Cabinet following the Finance Minister’s approval given for the proposal submitted by then Energy Minister Udaya Gammanpila on 27 December 2021 for the obtaining of single cargo procurement awarded for the import of petroleum and petroleum products (BK/90/2021, BK/92/2021 and BK/01/2022). As per the observations given by Finance Minister Basil Rajapaksa, his approval had been given on recommendations of the SSCAPC due to the prevailing conditions. “As the requirement arises, I agree with the proposals. However, the SSCAPC may take all possible measures to ensure energy security of the country at the minimum possible cost to the Ceylon Petroleum Corporation (CPC) and the Government. Further, the waiver is applicable for a three-month period and the Cabinet may grant a further extension after reviewing the requirement at that juncture. The SSCAPC may provide proper justification for such deviations and the covering approval of the Cabinet approval should be obtained later,” Minister Rajapaksa had stated in his observations.  Nevertheless, as per the minutes of the SSCAPC on 18 March 2022, the SSCAPC had noted that, considering the necessity of continuous operation of the refinery where no other tender had been secured until May 2022 for crude oil supply, thus ensuring the energy security of the country, the authorities had taken action to discuss with the proponent to sort out the remaining matters. In this situation, subject to fulfilling the due diligence requirement where the trial shipment is a success, long-term agreement for one year supply is to be entered into under a permanence guarantee worth $ 500,000, the SSCAPC stated. In the meantime, Government attempts to secure crude oil from the UAE based on an unsolicited proposal have been criticised by energy sector trade unions, which claim the proposal that was rushed to the Cabinet was suspicious as there was no company registered under the supplier’s name in Sri Lanka to accept payments in Sri Lankan Rupees. Speaking to The Sunday Morning, Energy Trade Union (ETU) Convener Ananda Palitha stressed that the CPC had already entered into an agreement with a UAE company to bring down crude oil for a period of six months and therefore there was no rush to go ahead with an unsolicited proposal. He alleged that it was an attempt by a group of high profile individuals to legalise their black money that was in other countries. “No supplier would sell crude for Sri Lankan Rupees, especially when converting Sri Lankan Rupees has no value in the UAE. Therefore, unless the respective supplier had some other motives, they would not go for such a sale as crude is not something perishable,” he added.    


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