Fuel supply: Revving up towards a crisis?

• High chance of fuel shortage; procurement process needs to improve: TUs
• Opposition concerned over forex crisis impact on fuel supply
• Energy Minister confident of continuous supply despite challenges

By Skandha Gunasekara

Opposition parties and trade unions (TUs) warned of an impending fuel crisis, urging the Government to act decisively to prevent compounding the ongoing economic crisis. This comes as the Government signalled a gradual return to the “new normal” last week, with plans to reopen the country in stages initiated amidst efforts to mitigate the impact of the foreign exchange crunch.

At present, 20% of Sri Lanka’s import expenses are incurred on fuel, and thus a majority of foreign exchange is expended on the same.

Ceylon Petroleum General Services Union (CPGSU) President Asoka Ranwala told The Sunday Morning that despite fuel supplies being sufficient at present, a fully functioning economy would see a significant rise in fuel consumption.

Ranwala said that fuel consumption had reduced significantly during the lockdown.

“As the public transport and railway services were halted during the lockdown period, non-essential industries had also stopped functioning. Thereby, fuel consumption in the country – particularly of diesel – had reduced considerably, and so the current supplies were sufficient. During lockdown, daily fuel consumption dropped by 50%,” Ranwala said.

However, he said that once the country reopens fully, daily fuel consumption would increase drastically.

“There won’t be an issue as soon as the lockdown is lifted, but the problem of a proper procurement process to bring down a continuous supply of oil persists. This current system cannot continue for long once the country is reopened fully. Fuel consumption will rapidly increase. We at the Ceylon Petroleum Corporation (CPC) have clearly stated that a proper procurement process needs to be introduced to ensure a steady, uninterrupted supply of fuel,” he said.

Procurement process problems

Ranwala revealed that the issue lay with the current procurement process, which brought in fuel in limited supply.

He added: “The chance of a fuel shortage is high. As it stands, a shortage is likely if the procurement process isn’t improved. What happened for several months was that fuel was ordered in exact amounts for each month, and nothing more. The procurement process does not ensure a continuous supply of fuel.

“There won’t be a shortage in the next few days, but if this fuel procurement process isn’t improved, there could be a fuel crisis once the country begins to function at full capacity.”

Janatha Vimukthi Peramuna (JVP) parliamentarian Vijitha Herath charged that the Government was desperate for foreign exchange to buy fuel stocks and was relentlessly seeking loans.

“The Government has no money to buy fuel; they don’t have dollars. People will have to stand in queues for everything, from milk powder to fuel. This clearly shows the Government’s incompetence,” Herath said.

“It is easy to see how bad the situation is by observing how the Government is asking for loans. They are seeking over $ 250 million in loans to buy fuel,” he alleged, adding that the loans would further burden the indebted CPC.

“This would put the CPC in further debt. The CPC is running at a massive loss and is in debt to Bank of Ceylon (BOC) as well as a multitude of commercial banks. The people of the country don’t buy fuel on loans,” he further noted.

Herath warned that a fuel shortage would further cripple the country’s economy. Noting that the economy runs on imported fuel, he said that transportation services, railway services, factories, the construction industry, agriculture, and even the fisheries sector rely on fuel supplies to function. “The economy will collapse if there is a fuel crisis,” he stated.

Govt. refutes ‘allegations’

Meanwhile, United National Party (UNP) Leader Ranil Wickremesinghe, participating in a panel discussion organised by the Ceylon Chamber of Commerce (CCC), too warned that the foreign exchange debacle would affect fuel supplies.

Nevertheless, Minister of Energy Udaya Gammanpila was confident that the country would not face a fuel shortage. He said the Government had allocated adequate foreign exchange to purchase fuel.

“The Opposition has been going on about a fuel shortage for more than three months. They believe that when there is a forex crisis, the first thing that will come crashing down is fuel supply, simply because 20% of our export expenditure is spent on fuel. But this is not happening, and we will not allow a fuel shortage,” he assured.

“The Opposition is continuously making allegations. Some claimed that the lockdown was extended till 1 October to cover up a fuel shortage. But the fact of the matter is that the lockdown was extended following the recommendations of the health authorities.

“Despite the forex crisis, the Government allocated what little foreign exchange it had to procure fuel, and as such, we have been able to ensure that there was no fuel shortage. The new Central Bank Governor pledged to ensure $ 200 million is available to buy fuel each month. Even though the country is facing a foreign exchange crisis, the Government can confidently say that there will be no fuel crisis. We guarantee uninterrupted petrol supplies till January 2022 and diesel till November this year,” Gammanpila explained.

The Government sought a loan facility from India to procure fuel, the Minister said.

“In August, I made a request from India’s Minister of Petroleum and Natural Gas Hardeep Singh Puri to facilitate a loan of $ 500 million to procure fuel, as we are facing forex issues. This loan facility was approved by the Indian Government, and once it’s approved by our Ministry of Finance, we will enter into the relevant agreements to procure diesel for November.”

He then went on to say that Sri Lanka was looking at natural gas as a viable option to provide energy for the country.

“Following visits to several countries by myself and officials of the Ministry, we were able to invite (officials of) Saudi Arabia and Azerbaijan to join us in exploring for crude oil in Sri Lanka. Similarly, we participated at the Gastech Exhibition, and ExxonMobil and others showed interest in searching for and mining crude oil in Sri Lanka, and we hope to see positive outcomes in this regard by the end of this year,” he added.

Obstacle in the way

Nevertheless, the Minister charged that the recent agreement the Sri Lankan Government entered into with US-based energy company New Fortress Energy Inc. would pose an obstacle to prospective foreign investments in domestic gas exploration and production ventures.

“The supplying of gas by New Fortress Energy will begin from 2023 for a period of five years. However, I believe that by allowing New Fortress Energy to produce natural gas in Sri Lanka, we will be hindering opportunities for foreign investments into gas mining. I have expressed my views to the Cabinet, and we informed them in writing how this deal with the US company will affect the CPC,” Gammanpila noted.

He further alleged that allowing a US company to monopolise the local natural gas production industry posed a threat to the country’s national energy security.

“Our problem is not that 40% ownership of the Yugadanavi Power Plant was given to New Fortress Energy; as it is, a large number of power plants have been given to the private sector. The issue is that we are giving the US a natural gas production monopoly in Sri Lanka for five years from the year 2023. It is also a problem for our national energy security. This agreement was entered into without any consultation with our Ministry,” Gammanpila added.

He said that Sri Lanka was facing several challenges in attracting foreign investment for natural gas ventures, particularly in terms of domestic exploration, mining, and production of natural gas.

“Firstly, we are beginning such ventures when the rest of the world is leaving behind natural gas and shifting to renewable energy. Secondly, the financial impact caused by the Covid-19 pandemic has, understandably, made prospective investors cautious and more inclined towards investing in countries they are familiar with, rather than investing in new countries.

“The third problem is that we failed to utilise the gas resources we have available domestically in the past. The process of mining, transporting, and exporting natural gas overseas is immense and costly. As such, no investor would want to risk that much money in natural gas resources that haven’t even been used by us, as they would be investing in an untested energy venture, which is a big financial risk,” he explained.

The Trincomalee Oil Tank Farm could have helped Sri Lanka stave off any possible fuel shortage if it could be used to store and process large amounts of fuel.

However, due to prolonged discussions with the Indian Government, an agreement was yet to be reached over these assets.

Minister Gammanpila noted that discussions were protracted, as the two countries did not see eye to eye on various clauses and conditions in the agreement.

“This agreement could have been signed in September 2020. However, India doesn’t agree to our conditions and vice versa, so these discussions are being delayed. I will not sign any agreement that is disadvantageous to Sri Lanka,” he said.

The Trincomalee Oil Tank Farm is an asset that has the potential to greatly develop Sri Lanka’s fuel sustainability. But stalled talks have rendered the asset useless for the time being.

Whether the warnings by trade unions and the Opposition have fallen on deaf ears is yet to be seen, as the Government appears to be confident that the country won’t face a fuel shortage.