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New LP gas company affiliated to CPC: Igniting a solution

21 Aug 2021

  • TUs seek written assurance that no foreign or local companies will hold shares  
  • Energy Minister assures company will be a venture under CPC and not a PPP 
By Maheesha Mudugamuwa   Petroleum industries trade unions (TUs) are up in arms against the government decision to establish a new liquefied petroleum (LP) gas company affiliated to the Ceylon Petroleum Corporation (CPC), as they alleged that it’s an attempt to extend Lanka Indian Oil Company’s (LIOC) agreement, which is to expire in two years.  Referring to the previous attempts made by Sri Lanka a decade ago to establish such a company together with an Indian partner, the TUs urged the Government to give a written assurance that no local or foreign company would hold shares of the gas company to be established, and the sole authority would be kept under the CPC.   Speaking to The Sunday Morning, Janatha Vimukthi Peramuna (JVP)-affiliated Petroleum Common Workers’ Union (PCWU) President Asoka Ranwala charged that the Government was now attempting to amend both the Petroleum Resources Act and Ceylon Petroleum Corporation Act to pave the way for a private company to enter the oil business in Sri Lanka.   Ploy to extend LIOC contract? “It is obvious that private investors would definitely hold shares of the proposed CPC-affiliated gas company too, and that is why the Government is trying to amend the Acts and make things easier for them,” he opined.   Ranwala said LIOC’s agreement would expire in 2023 and now, with the Indian Government’s pressure, the Government is desperately looking for a way to keep LIOC in Sri Lanka by extending the agreement. Since they can’t extend the agreement, as it’s against what they promised to the public, they are now trying different ways to get it indirectly extended, he claimed.  As Ranawala alleged, the LIOC most probably would hold shares of the new company together with the CPC and Treasury.   “This is not a new attempt. Many years ago, they attempted to bring down India’s Mundas Gas Company and now, they are doing the same,” he stressed. It was during the peak of the protests held by the people against the shortage of LP gas a week ago, that the Cabinet decided to establish a new CPC-affiliated gas company, as a measure to avoid such a crisis in the future. Accordingly, it will manufacture LP gas locally. At present, the CPC’s production is being transferred to Litro – a state-run gas company.   However, as learnt by The Sunday Morning, the plans were said to be still at its very initial stages, as the proposal was discussed very recently.   It is also said that the Treasury would hold shares as usual, but nothing had yet been discussed regarding the nature of the company. Independent proposal? When contacted, Treasury Deputy Secretary R.M.P. Rathnayake told The Sunday Morning that the proposal regarding the new gas firm was not taken up at the discussions held to solve the gas crisis with Litro and Laughs, but was a separate proposal.   At the gas shortage discussions, the focus was on solving the importation issues, and both companies have agreed to jointly import the gas as bulk imports.   The country experienced a severe LP gas shortage during the past few weeks as Laugfs, the only private gas company in the country, stopped its operations, claiming they incur losses due to the import and selling price difference.   They insisted on a price revision to avoid incurring massive losses and to continue operations. After a few weeks of struggle, the Government decided to revise the prices of Laugfs gas.   Accordingly, the Consumer Affairs Authority (CAA) has permitted the increase the price of Laugfs LP gas cylinders. The price of a 12.5 kg Laugfs domestic gas cylinder was increased by Rs. 363 and the new price is Rs. 1,856. The 5 kg mini cylinder was increased by Rs. 145 and the new price is Rs. 743.   However, the prices of domestic gas cylinders of the state-owned Litro Gas Lanka Ltd. would remain unchanged. Following the price revision, Laugfs promised an uninterrupted operation and the supply is expected to return to normal this week.   Sudden decision raises eyebrows In such a background, concerns have been raised over the sudden decision taken by the Cabinet to establish a new gas company, especially when the decision was taken while the Cabinet decided to call for international bids for a 100,000 barrels per day (bpd) oil refinery on a build-operate-transfer (BOT) basis and to amend the Ceylon Petroleum Corporation Act No. 28 of 1961, to end the state refining monopoly in May.   Accordingly, Sri Lanka already has a legal and institutional framework relating to petroleum.   Currently, there are four statutes governing the petroleum sector in Sri Lanka, namely the Ceylon Petroleum Corporation Act No. 28 of 1961 (amended in 1963 and 1965); Petroleum Resources Act No. 26 of 2003, to provide for the exploration and recovery of petroleum in Sri Lanka; Petroleum Products (Special Provisions) Act No. 33 of 2002 to provide for an alternate procedure for import, export, sale, supply, and distribution of petroleum products; and the Public Utilities Commission of Sri Lanka (PUCSL) Act, No. 35 of 2002, to provide licensing, regulatory, and inspection functions pertaining to utility industries. The enforcement of these statutes are vested with several public agencies. The Ministry vested with the subject of petroleum resources development is assigned with the functions of “importing, refining, storing, distributing, and marketing petroleum-based products and natural gas” while the CPC was established with the mandate to carry on business as an importer, exporter, seller, supplier, or distributor of petroleum covering the areas of exploring, exploiting, producing, and refining of petroleum with exclusive right to import, export, sell, supply, or distribute petroleum of certain classes of products that include petrol, kerosene, diesel oil, aviation fuel, and furnace oil.   The PUCSL was established for the purpose of regulating utilities including those involved in the petroleum industry.  However, a total of eight TUs attached to the CPC decided to oppose the proposed amendment to the CPC Act No. 28 of 1961 (as amended), which would allow the Minister of Energy to issue licences to any private party to import, refine, market, supply, produce, mix, and distribute petroleum products.  Nevertheless, the Government expects that once the construction work of the new refinery at Sapugaskanda is completed, it would be able to cater to 20% of the LP gas requirement in the country. The existing 38,000 bpd refinery by the CPC will be expanded to 45,000 bpd through the proposed refinery project. The feasibility study in this regard is expected to be completed by October 2021.  ‘Fully state-owned,’ assures Energy Minister When contacted, Energy Minister Udaya Gammanpila said the decision had come through the Cabinet and the necessary cabinet paper would be submitted to the cabinet soon.   He, however, assured that the company would not be a private-public partnership (PPP) but a sole CPC-owned establishment.   “We have to first do a feasibility study and therefore, it will take several months,” he added.  Meanwhile, consumer rights activists welcomed the government decision to establish a new LP gas company in Sri Lanka but stressed that it should not be yet another burden to the Government or the citizens.   “At present, we have only two companies, Litro and Laugfs. Therefore, it is a good decision to establish a new company in Sri Lanka to supply gas so that the consumers can benefit from good market competition. But this should not affect the people in a negative manner,” the National Movement for Consumer Rights Protection Chairman Ranjith Vithanage told The Sunday Morning.  

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