• Loans from state banks pile up due to repayment issues 

• TUs concerned over move to amend laws to address crisis 

By Maheesha Mudugamuwa   The debt-ridden Ceylon Petroleum Corporation (CPC) is facing a severe financial crisis and is on the verge of collapse, as it is unable to pay the excessive loans it borrowed from state banks to import petroleum products over the last several years, The Sunday Morning learnt.  It is learnt that the CPC owes around $ 3.3 billion to Bank of Ceylon (BOC) and People’s Bank for importing petroleum products since 2014; in addition to other losses incurred by the corporation for supplying fuel on credit to SriLankan Airlines, the Ceylon Electricity Board (CEB), and Sri Lanka Railways.  In such a backdrop where the debt capacity of the CPC has reached its maximum and the Treasury is also facing difficulties in making the payments on behalf of the corporation, concerns have been raised over government plans to amend the existing laws to open to the private sector the business of supplying, refining, and distributing petroleum products which are at present handled by the CPC.  Speaking to The Sunday Morning, Janatha Vimukthi Peramuna (JVP)-affiliated Petroleum Common Workers’ Union (PCWU) President Asoka Ranwala alleged that the CPC had been importing petroleum products over many years via BOC and People’s Bank by opening letters of credit (LCs) and since the corporation was unable to pay off the loans, the amount had now piled up to around $ 3.3 billion.    Private sector an alternative solution? “Since the existing amount has not yet been paid, the CPC was not in a position to purchase fuel through LCs further, and the Treasury was also not in a position to absorb the said amount, the Government is now looking for alternative solutions,” he stressed.  One such attempt, as explained by Ranwala, is the decision to amend the existing Petroleum Corporation Act No. 28 of 1961 so that the authority of granting permission for such operations will be entrusted to the minister in charge of energy.  The proposal to amend the Act was submitted by Energy Minister Udaya Gammanpila to the Cabinet last month.  According to the cabinet paper, any party selected, after following a proper procedure, could be given permission to import, refine, and distribute petrol, diesel, kerosene, furnace oil, petroleum products, and alternative fuel.  It further said that according to the 1961 Act, the CPC held the monopoly on oil imports, refinery, and distribution, but under a 2002 Special Act, the Lankan Indian Oil Corporation (LIOC) was also granted permission.   However, since the Act was not effective now, the original Act needed to be amended to grant permission for competitive institutions to take part in the importing, refining, and distribution.    Chinese company to build refinery? Highlighting the cabinet paper, the JVP-PCWU President stressed that the decision to amend the existing Act was taken to pave the way for a Chinese company to enter the local petroleum market by means of building a new refinery on a Build, Operate, and Transfer (BOT) basis.  “The Ministry has not yet revealed the details of the project but as far as we know, the BOT agreement is for 20 years and during that period, the entire world would be switching to LNG and there would be no necessity for owning a refinery,” he stressed. Ranwala also highlighted that the Government was looking at obtaining a loan worth around $ 2 billion from China to pay the CPC’s debt, and since that amount is a large portion of the total debt owed to the BOC and People’s Bank, it was clear that there was a direct relationship between the amending of the Act and the obtaining of the loan, he alleged.  Explaining further, he noted that if the Government amended the Act and opened up space for another player in Sri Lanka, the CPC would be facing the fate of the Sri Lanka Transport Board (SLTB).  “The only way the CPC has to get out of the existing debt trap is the (current) refinery, and due to the financial situation, the Government has been unable to invest in refurbishing the existing refinery. If we allow another foreign company to engage in the refining business in Sri Lanka and also the distribution, the CPC would collapse,” he added.  “We are vehemently opposed to the new amendments. We have informed the Minister in writing and we will also be meeting the CPC Chairman next week to discuss the issues,” he added.  The CPC had long been a monopoly provider of petroleum products to the local market. However, another player was added to create a duopoly in the petroleum product distribution market in 2003.    ‘No basis for losses’ Meanwhile, Energy Trade Union (ETU) Convener Ananda Palitha, who is also the former President of Jathika Sevaka Sangamaya (JSS) – Ceylon Petroleum Storage Terminals Ltd. (CPSTL) Branch, said there was no reason for the CPC to incur losses at present, as during last year, the corporation had not reduced the fuel prices despite the crude oil prices in the world market dropping drastically due to the Covid-19 pandemic.  He alleged: “The CPC is not (actually) incurring losses at present but the reason why the CPC’s reporting losses is because the CPC’s revenue is not coming to the corporation; instead, it is going to the Government.”  Palitha stressed that if the Government let the CPC utilise the amounts it had saved during last year’s lockdown, the CPC would have been able to pay off its debts, but instead, the Government had utilised the money and the CPC further incurred losses, he claimed. He added that the CPC’s situation before the global prices plunged, had not been changed, even though the local prices had not been changed.  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 those 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 CEB owed the CPC Rs. 50 billion for providing diesel for the CEB’s power plants, he said.  The official statistics show that the CPC’s borrowings from the banking sector rose by Rs. 74.1 billion to Rs. 381.8 billion in 2020, or 2.5% of the gross domestic product (GDP), with a large portion in foreign exchange due to policy errors.  Government debt, without state enterprises losses, was already 101% of GDP by end-2020, with a 13.8% GDP budget gap financed during the year.  As per the Central Bank statistics, the Fuel Price Stabilisation Fund (FPSF), which was established last year, was partly utilised to settle the dues of the CEB to the CPC during 2020, and the fund recorded a balance of Rs. 379.1 million at the end of 2020.  Speaking to The Sunday Morning about the CPC’s debt, Energy Minister Udaya Gammanpila said the CPC had enough money to pay, but it was the Government that did not have enough dollars at present.  "We earn money everyday by selling petroleum products and we have money," he told The Sunday Morning.  However, commenting on the proposed amendments to the law, the Minister said the suggestions had already been forwarded to the Legal Draftsmen and once they finished their task, it would be forwarded to the Attorney General's (AG’s) Department.  Once the AG's clearance is given, the draft would be gazetted and public opinion would be sought, the Minister said, adding that a meeting would be held next week to discuss the matter further.  

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CPC’s exposure status   According to the 2019 Annual Report of the Ministry of Finance, the Ceylon Petroleum Corporation (CPC) recorded an overall loss of Rs. 12 billion in 2019. The continuous losses accumulated by the CPC over the years stood at Rs. 337 billion as at the end of 2019. Trade receivables, which stood at Rs. 95 billion at the end of 2018, increased to Rs. 164 billion by the end of 2019, resulting in the CPC’s exposure to the Bank of Ceylon (BOC) and People’s Bank (PB) closing at Rs. 566 billion. The CPC has been financing the operations of the electricity sector, in particular, with about Rs. 102 billion remaining unpaid at the end of 2019.  Treasury guarantees amounting to $ 1.8 billion have been issued to cover the exposure to the above two banks, according to the report.