brand logo
CPC pays $ 17 m in demurrage costs amid financial challenges

CPC pays $ 17 m in demurrage costs amid financial challenges

26 Nov 2023 | By Maheesha Mudugamuwa

The State-run Ceylon Petroleum Corporation (CPC) has shelled out an exorbitant $ 17 million solely in demurrages last year, The Sunday Morning reliably learns.

Sources within the CPC close to the subject said that this staggering financial outlay translated to a substantial loss for the corporation. 

The underlying cause, as disclosed by CPC insiders, points to mismanagement by CPC officials.

In addition, as disclosed in the CPC audit report for 2021 (the latest available), the demurrage claimed by suppliers in 2021 surged from Rs. 67 million to Rs. 400 million – an alarming fivefold increase compared to 2020.

However, the precise demurrage costs incurred by the corporation were not transparently presented in the financial statements for the reviewed year, as noted in the report.

Moreover, the report attributes these losses to the deteriorated condition of the pipeline, causing delays in unloading fuel stocks.

“According to the Common User Facilities Shareholders’ Agreement entered into between the corporation, LIOC, and the Government of Sri Lanka on 30 December 2003, and the agreement between the corporation and CPSTL on 13 May 2019, CPSTL was entrusted with maintaining pipelines at an accepted standard and providing storage facilities sufficient for two months of fuel requirements. However, due to delays in unloading fuel caused by pipeline blockages and inefficient storage, the corporation found itself liable to pay demurrages,” the report stated.

The audit report further reveals that a list of vessels incurring demurrage related to shipments in 2021 due to poor infrastructure maintenance by Ceylon Petroleum Storage Terminals Ltd. (CPSTL) has been forwarded to CPSTL for recovery. 

However, as of now, there has been no response from CPSTL in this regard, according to the CPC management’s communication with the National Audit Office (NAO).

Additionally, available statistics indicate that the total amount to be collected from foreign suppliers stands at $ 4,392,675 for the period from 2012 to 2018. 

This comprises $ 1,476,556 for penalties imposed due to late delivery/short loading, $ 178,678 for external losses, $ 2,630,423 for penalties for unacceptable quality, and $ 107,017 for losses due to price differences. 

Regrettably, the corporation has not taken effective action to collect these amounts or settle them against payable amounts by the end of the reviewed year.

Despite the CPC management informing relevant suppliers to remit the funds, the amounts remain unsettled, as these suppliers have also accumulated demurrage charges which the CPC is obligated to pay.

Speaking to The Sunday Morning, All Ceylon Petroleum Corporation Employees’ Union (ACPCEU) President Asoka Ranwala said that they had already lodged a complaint with the Commission to Investigate Allegations of Bribery or Corruption (CIABOC) regarding the irregularities and mismanagement at the CPC that had led to massive losses being incurred annually. 

“Most importantly, the software system currently being used by the CPC should be renewed to prevent malpractice. Typically, the system should be updated every six months. An audit should be conducted, but since the day of installation, no audit has been conducted for the software system. Likewise, demurrage costs are being incurred due to CPC mismanagement. It is not scheduling shipments in a timely manner,” he alleged.

Meanwhile, CPC Chairman Saliya Wickramasuriya told The Sunday Morning that the delays in unloading last year were primarily due to the foreign exchange crisis faced by Sri Lanka.

He stated: “I was not in this position last year, but the forex crisis inevitably resulted in payment delays to suppliers. However, since we needed the cargo, we had to request suppliers to wait until we could pay them according to the terms under which the cargo was shipped. This led to unloading delays and the accrual of demurrage charges.”

Wickramasuriya emphasised that with the increase in CPC’s forex reserves this year, it could now confirm Letters of Credit (LCs) it had opened and that some suppliers were extending credit. Additionally, the introduction of a new ‘storage modality’ has resulted in no demurrage payments in 2023.

Regarding the pipeline and other projects, Wickramasuriya stated that the CPC planned to proceed as much as possible with its own funds next year after settling outstanding dues to the Government from operational profits this year.

More News..