News

Fuel supply: Sapugaskanda to refine $ 75 m of Siberian crude

 

  • Delays in unloading will incur demurrage
  • Arrangement planned as a ‘one-off’
  • Second shipment expected in 2 weeks
  • Sovereign guarantee of 2 months via NRRA

By Asiri Fernando

Sri Lanka’s only refinery will recommence production in the second week of June using a $ 75 million (Rs. 27 billion) consignment of Siberian crude oil, which the Government has sourced from a Dubai-based supplier on a new payment plan that includes a sovereign guarantee, Minister of Power and Energy Kanchana Wijesekera said yesterday (28).

According to Minister Wijesekera, the 90,000 MT consignment of Siberian crude, which has not been used in Sri Lanka’s ageing refinery, began unloading at Colombo Port last Friday (27). He said the agreement for the shipment had been made before he took up the portfolio.

When asked if Siberian crude was compatible with the local refinery, which is accustomed to running on Iranian light and Omani light, Wijesekera said the new crude oil variety was compatible, but its petroleum product throughput efficiency would only be verified once operations commenced. 

The Sapugaskanda Refinery plans to use 3,500-4,000 MT of Siberian crude daily once operations commence. This will give the refinery a 21-24-day operational capacity with the current stock.

When asked about the financial arrangements of the crude oil contract, Wijesekera said that the deal had been taken up due to favourable payment options provided by the supplier, Dubai-based Coral Energy (parent companies LaGuardia and D&M Holding).

“I think this is the first time we worked out a way to make immediate payments for consignments in rupees to an account set up locally, which will be converted to US Dollars by the Central Bank of Sri Lanka (CBSL) after two months,” Wijesekera explained, adding that the the method had been undertaken to address delays in making payments in dollars.

The sovereign guarantee offered by the CBSL will give the Ceylon Petroleum Corporation (CPC) a two-month period to source dollars to make payments.

“This Siberian crude oil consignment was arranged before I took office. There had been tenders for crude oil that didn’t get any bidders, so there were individual companies that had given proposals to supply crude oil. This has been done as a one-off cargo consignment. 

“According to the arrangement, we opened a Non-Resident Rupee Account (NRRA) and got a tripartite agreement with the supplier, the bank, and the CPC, where we (CPC) deposit the money in rupees and, after a 60-day period as agreed with the supplier, the CBSL Governor has given an undertaking to convert the rupee amount into dollars to be paid to the supplier. This is the agreement that we have. 

“The next shipment will also be ordered on the same basis, because we need another crude consignment in the next couple of weeks to keep the Sapugaskanda Refinery going. However, we want to enter long-term contracts, so we have started a tender procedure,” the Minister explained.

When asked if the tender procedure would change, Wijesekera said that an arrangement similar to the current agreement with Coral Energy would be favourable for Sri Lanka, as it would be easier for the CPC and also lessen the burden on the Treasury.

When asked whether by purchasing Siberian crude Sri Lanka had begun to purchase fuel from Russia, currently under sanctions by the US due to the Russia-Ukraine conflict, Minister Wijesekera stressed that the purchase had been made from the Dubai-based supplier.

Responding to criticism of delays in unloading the 90,000 MT shipment, Wijesekera shared that while the daily demurrage fine was approximately $ 120,000, there had been some delays due to the shortcomings of the supplier vessel and that the Ministry would ensure that the State would not be charged for such delays.

Wijesekera stated that once the refinery commenced operations, the anticipated output from Siberian crude would be approximately 1,000 MT of diesel, 400 MT of furnace oil, 250 MT of naphtha, 600 MT of kerosene, and 50 MT of Liquefied Petroleum Gas (LPG).

The Sapugaskanda Refinery was closed on 20 March following a one-month shutdown in January. The refinery produces kerosene and furnace oil, with the latter used in generating power as well as in several industries.