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Fuel supply to local market: Uncertainty over uninterrupted supply 

06 Nov 2021

  • Omani and Indian credit lines for oil yet to be finalised
  • TUs seek more transparency on $ 3.6 b Oman deal
By Maheesha Mudugamuwa Uncertainty looms around the uninterrupted supply of fuel from January onwards, due to the ongoing foreign exchange (forex) crisis as well as the pending finalisation of the two credit lines the Government is desperately awaiting to pay for crude oil purchases. Last month, Energy Minister Udaya Gammanpila warned that the availability of fuel in the country could be guaranteed only till January. Minister Gammanpila told the media that the Finance Minister was informed of the situation; where the Ceylon Petroleum Corporation (CPC) could face financial difficulties in importing fuel if a solution was not provided soon. Two weeks ago, Gammanpila said the Government was preparing agreements for a $ 3.6 billion credit line from Oman for oil imports after the Cabinet gave the nod for the same, and that the CPC had prepared agreements for a $ 500 million credit line from India, which was then sent to the Treasury. Nevertheless, trade unions (TUs) raised concerns over the Omani deal, as they alleged that details about the government guarantee for the Omani credit line had not yet been revealed. They added that suspicions had arisen as to whether it was planning to allow Oman to drill for oil in the Mannar Basin. Speaking to The Sunday Morning, Petroleum Common Workers’ Union (PCWU) President Asoka Ranwala said that usually, there was a plan when purchasing crude oil for Sri Lanka. This plan would be drawn up after considering the expected amount of petrol and diesel that can be refined from the imported crude oil, and then how much Sri Lanka should import to fill any deficit. “The CPC, Ceylon Petroleum Storage Terminals Ltd. (CPSTL), Indian Oil Company (IOC), and the Sapugaskanda Refinery, which are aware of the (consumption) statistics, make a plan three or four months in advance of the payments being made to crude oil ships, in order to provide an uninterrupted fuel supply,” he explained, adding that the plans also included the selection of crude oil that suited the country, at the lowest prices. Also, plans should be made a few months in advance when purchasing finished petroleum products such as petrol and diesel to fill any deficit, he said. Ranwala said the process was conducted every month so as to ensure that there would be no interruption in supply. “This is an uninterrupted process. But now, the Government has not yet made the payments for the crude oil shipments or finished products that we are to purchase from Singapore, due to the existing dollar shortage in the country. This has affected all imports, mainly crude oil purchases,” he stressed. Furthermore, the CPC was incurring huge losses due to the ongoing foreign exchange crisis, as crude oil and finished products were being imported based on dollar availability as opposed to the approved tender procedure by getting cabinet approval. Ranwala explained: “We currently order from the shipments available at sea. This has created several issues, including the inability of providing the expected quality of fuel and also fuel at the lowest rates.” The TU leader also stressed that even though it was the duty of the CPC to provide an uninterrupted fuel supply, the CPC had run away from that responsibility. Commenting on the Omani deal, Ranwala said the deal was suspicious, as it was being done in secret and details of the deal were not revealed to the public. “We don’t know on what basis Oman had agreed to provide $ 3.6 billion to Sri Lanka. We have seen the attempts made by the Ministry to amend the existing laws, and the way the Government is acting on the Omani deal is very suspicious,” he claimed. Meanwhile, the Government last week assured that there was no fuel shortage in the country, and there will be no such shortage in the future either. Co-cabinet Spokesman Plantation Minister Dr. Ramesh Pathirana told the media at a recent cabinet media briefing that the country had sufficient stocks of fuel and urged people not to panic and be deluded by speculation. Despite the issues related to foreign exchange, the CPC had awarded contracts to supply 1.4 million barrels of diesel and 1.8 million barrels of petrol from January 2022 to August 2022, to Vitol Asia (Singapore) (Pte.) Ltd. The Cabinet of Ministers had approved a proposal made by Energy Minister Gammanpila to award a long-term contract to the Singapore-based energy and commodities company to import petrol and diesel to Sri Lanka. Bids were called from the registered suppliers of Lanka Petroleum Corporation for the long-term contract to import 1,137,500 +10/-5% barrels of diesel (maximum sulphur percentage 0.05), which will run from 1 January 2022 to 31 August 2022, and 262,500 +10/-5% barrels of super diesel (maximum sulphur percentage 0.001) for the same period. Bids were also called to import 1,341,000 +10/-5% barrels of petrol (92 octane unleaded), which will run for a period of eight months from 1 January to 31 August 2022, and 459,000 +10/-5% barrels of petrol (95 octane unleaded), which will run for the same period. Raising questions about the proposed Omani deal, Energy Trade Union (ETU) Convener Ananda Palitha said it was a suspicious deal, as the Government failed to reveal what guarantee they needed to give Oman. “The CPC is a debt-ridden state institution. The country is the same. There must be a very special reason for Oman to provide us a billion-dollar credit line,” he said. “The Government is one step short of bankruptcy, and the Minister earlier questioned who would be giving us a guarantee to obtain a loan,” he stressed. Palitha alleged that the Government was planning to provide oil drilling rights in Mannar to Oman as a guarantee for the credit line. As learnt by The Sunday Morning, as of September, the total loan amount payable by the CPC was Rs. 618 billion, while it pays a total of Rs. 1.2 billion as interest on these loans.  In addition, the CPC owed $ 425 million to Iran, while the Treasury owed the CPC Rs. 640 billion for providing subsidised fuel. Furthermore, the Ceylon Electricity Board (CEB) owed the CPC Rs. 50 billion for providing diesel to the CEB’s power plants. Official statistics show that the CPC’s borrowings from the banking sector had risen by Rs. 74.1 billion rupees to Rs. 381.8 billion rupees in 2020, or 2.5% of the gross domestic product (GDP), with a large portion in foreign exchange due to policy errors. As per the Central Bank statistics, the Fuel Price Stabilisation Fund (FPSF), which was established in 2019, was partly utilised to settle the dues of the Ceylon Electricity Board (CEB) to the CPC during 2020, and the fund recorded a balance of Rs. 379.1 million at the end of 2020.

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