A stock of 20,000 MT of diesel, worth millions of rupees, imported by the Sri Lanka Ports Authority (SLPA) during the tenure of President Mahinda Rajapaksa to store in oil tanks near the Hambantota Port has allegedly disappeared after the port was leased out to China in 2017, The Sunday Morning learns.
It is learnt that the fuel stock had been brought down in order to recommence bunkering activities at the Hambantota Port, which had not worked out as planned. The stock of fuel is the second such stock imported by the SLPA, following quality concerns raised over the first stock of aviation fuel which had been stored at the same premises, it is reliably learnt.
A source close to the matter told The Sunday Morning that the Ceylon Petroleum Corporation (CPC) now had no authority over the oil tanks in Hambantota. The source alleged that 10% of the total shares owned by the CPC had been transferred by then Minister of Petroleum Industries Mahinda Amaraweera to the Chinese company which had then taken over its operations.
The source further claimed that with the signing of the Hambantota Port lease agreement under the then Sirisena-Wickremesinghe Government in 2017, the Chinese Petroleum and Chemical Corporation (Sinopec) had taken over the oil tank farm.
Nevertheless, officials remain tight-lipped about how the oil tank farm with its stock of around 20,000 MT of diesel had been leased out to China under the port’s lease agreement signed in 2017.
The Hambantota Port was leased out in December 2017 to a company established by China Merchants Port Holdings Company (CMPHC) for a reported lease value of $ 1.12 billion on a 99-year lease.
The lease of the Hambantota Port resulted in a series of controversial political acts, including protests. However, prior to the signing of the lease agreement, there was a change of ministers as then Minister of Ports and Shipping Arjuna Ranatunga was replaced by Mahinda Samarasinghe, who also held the same portfolio in the Sirisena-Rajapaksa Government formed in 2015.
Accordingly, a total of 1,115 hectares of land in the Hambantota Port was leased out to China Merchants Port Holdings for 99 years for $ 1.12 billion, with the company holding 70% of the total shares and the SLPA holding the remaining 30%.
Oil tanks
According to the SLPA’s Annual Report of 2010, the project to construct 14 tanks with a total capacity of 80,000 cubic metres for storage/blending of marine fuel, aviation fuel, and LP Gas (LPG) and other related services at an estimated cost of around $ 77 million commenced in 2009. The project was jointly funded by the Exim Bank of China and the SLPA. The Bunkering Facility and Tank Farm Complex was inaugurated in 2014.
Nevertheless, two years after the inauguration, the SLPA in its 2016 Annual Report has stated that a decision was taken to lease out the bunkering facility, including three aviation fuel tanks, to a suitable operator. It is stated that a Request for Proposal (RFP) to operate the bunkering facility was launched and four proposals were received from prospective investors.
According to the Hambantota International Port Group (HIPG), at present, the storage network has 11 tanks, associated pipelines, and eight loading/unloading arms of two jetties. It also has a maximum storage capacity of 51,000 cubic metres for Very Low Sulphur Fuel Oil (VLSFO) and 23,000 cubic metres for Marine Diesel Oil (MDO).
Missing fuel
Speaking to The Sunday Morning, Energy Trade Union (ETU) Convener Ananda Palitha said the oil tank farm in Hambantota was not part of the Hambantota Port, being two different projects and therefore, could not be included in the same port lease agreement.
Questioning the fate of the 20,000 MT of diesel stored in the tanks prior to the handing over of the port to China, Palitha stressed that the authorities had no record of what had happened to the 20,000 MT of diesel.
“This diesel stock was imported by the SLPA and not by the CPC. Usually, tank farms are built by the CPC. However, this is a different incident. In 2001, Ranil Wickremesinghe sold the bunkering operation and the Sri Lanka Insurance Corporation (SLIC). After we filed legal action against the decision, a court decision was given in 2008 to reinstate the two State businesses, calling the sale illegal.
“The SLIC was reinstated, but the bunkering operation was handed over to the SLPA. During this time, the then Government decided to build a tank farm in Hambantota. It first imported aviation fuel and stored it, but there was an issue about its quality. Later, it imported 20,000 MT of diesel,” Palitha said.
He alleged that there was a questionable aspect in the port lease, in terms of whether the two properties had been merged in the single lease agreement as the operations of the oil tank farm had been handed over to China as soon as the port lease had been signed.
“The CPC only had a 10% share of this oil tank farm. During the Yahapalana Government, that share too was handed over to China by the then minister,” he stressed.
“There is no record of what happened to the 20,000 MT of diesel and whether its value had been calculated. The stock went missing, causing millions of rupees in losses to the Government. The oil tank farm is situated on a separate 15 acre land which is not within the Hambantota Port,” he pointed out.
Loan repayment
Meanwhile, an audit report issued by the National Audit Office (NAO) in 2021 revealed that the loans obtained by the SLPA to construct the oil tank farm were yet to be settled, even though the authority no longer had the rights over the tanks.
The report further revealed that the instalment amount obtained from the Bank of Ceylon by the General Treasury for the construction of the Tank Farm Project under the Hambantota Port Development Project was yet to be settled by the Treasury as scheduled. An amount of Rs. 377.84 million ($ 0.64 million) has been recovered from the Bank of Ceylon from a US Dollar account, which is being maintained in the bank under the name of the SLPA.
Although the above-mentioned amount has been stated as a balance receivable from the General Treasury as at 31 December 2021, the said amount has not been received by the SLPA even until 30 April 2022. It was observed that the receipt of the said amount was uncertain.
Meanwhile, in another audit report issued by the NAO in 2020, it is stated that when evaluating the investments of the International Ports Group of Company (unlisted) by the authority, although the investment cost in 2019 was considered to be Rs. 26,460 million as a fair value, in 2020, the investment was valued at Rs. 31,789 million based on net asset value per share as a fair value instead of investment cost.
Still in debt
Furthermore, it is also revealed that out of the foreign loans obtained for the construction of the Hambantota Port, the loan and interest balance of Rs. 147,746 million remaining in the accounts of the authority as at 30 November 2017 had been written off by the authority from Financial Statements without obtaining the concurrence from the General Treasury or the approval of the Cabinet, and therefore that loan had not been included in any account of the Government since that day.
However, according to the Cabinet approval given on 4 August 2017 to the Cabinet Memorandum titled ‘Hambantota Port Concession Agreement’ No. MPS/SEC/2017/32 of 20 July 2017, it was stated that the General Treasury would take the responsibility of repaying the above loans and interest.
Accordingly, the External Resources Department of the General Treasury had paid the loan instalments and interest from 2017 and according to the documents, the outstanding balance of the loan as at 31 December 2020 had been Rs. 169,566 million. Further, the accumulated foreign exchange conversion loss of Rs. 31,545 million calculated up to 30 November 2017 in relation to the aforesaid loan, had also been written off with the removal of debt from the accounts of the authority.
The accumulated foreign exchange conversion loss of Rs. 65,618 million as at 31 December 2020, including the accumulated foreign exchange loss of Rs. 34,072 million for the period from 30 November 2017 to 31 December 2020 had not been entered in the accounts of the General Treasury or the authority, it is stated.
SLPA response
Meanwhile, when The Sunday Morning attempted to contact those who had held positions in the SLPA during 2017 when the port lease was signed, the officials attached to the SLPA declined to comment, saying that they no longer held the same positions and therefore lacked the authority to divulge such sensitive information. It is learnt that the majority of the officials who worked during that time are now retired.
Regardless, The Sunday Morning sought answers regarding the controversial oil tank farm deal from SLPA Chairman Keith Bernard via an email as requested by SLPA Chief Law Officer Aparna Tilakaratne.
When contacted, Tilakaratne said that she was familiar with the port lease but had no authority to divulge sensitive information without the approval of the Chairman.
The Sunday Morning did not receive any response from the SLPA at the time of going to print.
All attempts made to contact officials from the Hambantota International Port Group, Ceylon Petroleum Corporation, and the Ministry of Power and Energy were unsuccessful.