- UP exits SL operations after just 5 months
- $ 27.5 m initial investment by UP
- 150 stations allocated, only 64 operated
- UP employees given 30-day termination notice
- CPC says no new international fuel retailers
- Ministry-UP talks underway
The State-run Ceylon Petroleum Corporation (CPC) has taken over the operational control of 64 fuel stations previously operated by the Australia-based United Petroleum (UP).
This follows UP’s decision to cease its Sri Lankan operations last December, despite having commenced operations in the country in August last year.
As part of the previous Government’s initiative to bring international fuel retailers into the country, UP signed its initial agreements on 8 June 2023. However, it took over a year for the company to begin operations in the country.
Chinese-based Sinopec was the first to sign an agreement on 22 May 2023, followed by RM Parks Ltd. in collaboration with Shell on 8 June. These long-term contracts focus on the importation, storage, distribution, and sale of petroleum products in Sri Lanka.
Before UP exited the local fuel market, the industry was primarily operated by Chinese and Indian companies, alongside the CPC.
Sinopec utilises the storage facilities of Ceylon Petroleum Storage Terminals Ltd. (CPSTL), while Lanka IOC (LIOC) uses the Trincomalee oil tank farm for storage.
According to the Board of Investment (BOI), UP made an initial investment of $ 27.5 million under its agreement and was granted the operations of 150 existing fuel stations across Sri Lanka, along with the rights to construct 50 new fuel stations.
Addressing UP’s exit, CPC Chairman D.J.A.S. De S. Rajakaruna told The Sunday Morning that the CPC had taken over operations of the 64 fuel stations previously run by UP to ensure an uninterrupted fuel supply in those areas.
However, he noted that the legal ownership transition of these stations had not been finalised yet, as discussions on the matter were still ongoing. “UP will reach a settlement. Discussions are still in progress,” he said.
When asked about the 150 fuel stations initially allocated to UP, Rajakaruna explained that under the previous administration, all 150 stations had been handed over to the company. However, these stations were not owned by the CPC but by private owners.
“Out of the 150, only 64 transferred operations to UP. The rest remained with the CPC as they preferred not to collaborate with UP,” he clarified.
Furthermore, Rajakaruna emphasised that legal discussions regarding the matter were being handled by the Ministry of Energy, which was currently in talks with the respective company.
When The Sunday Morning inquired whether a new international fuel retailer would be brought in to fill the gap left by UP, the Chairman stated that the local fuel market was relatively small and another retailer was unnecessary.
“The previous Government brought in international players to ensure a continuous fuel supply during the foreign exchange crisis. However, those issues have now been resolved, so there is no need for another international player,” he explained.
Meanwhile, Ministry of Energy Secretary Prof. Udayanga Hemapala confirmed that discussions on the matter were ongoing and that the ministry was yet to reach a final conclusion on any of the concerns.
As learnt by The Sunday Morning, last Friday (7) marked the final day of operations for UP in Sri Lanka.
However, according to a senior official attached to the UP Sri Lanka operations, who wished to remain anonymous, the decision to withdraw had been driven by months of tension with the Government over its failure to release the agreed number of fuel stations.
The official also cited Government inaction, policy shifts, and favouring a State-controlled fuel distribution model as key factors in the company’s exit.
The senior official further alleged that over the past four months, the company had been permitted to operate only 64 stations, while Government facilitation for the remaining sites had never materialised.
A gradual transition was initially expected under the contract, but the official claimed that the Government had deliberately stalled the process, making it increasingly difficult for UP to sustain operations.
“We were promised a structured transition, but the new administration has made it clear that it is prioritising a State-run approach, leaving no room for our operations,” the official told The Sunday Morning.
According to the official, the lack of Government cooperation had also resulted in a fuel shipment bound for Sri Lanka being forced to turn back last month, further crippling UP’s supply chain.
The company had nearly run out of octane 92 petrol and was expecting replenishments, but logistical obstacles had left it without a viable path forward.
As a result, UP ceased operations on 19 December last year, after which the CPC took over deliveries.
However, the transition had not been seamless, as the CPC was now supplying former UP dealers without extending key financial benefits, such as credit facilities, that its own dealers received, the official alleged.
The official further claimed that the Government had been negotiating behind closed doors to prevent UP from taking legal action at the Singapore International Arbitration Centre (SIAC), where contract disputes could lead to international arbitration.
Additionally, the official revealed that a Cabinet paper had been submitted last week to override a clause in UP’s agreement that initially prohibited profit repatriation for the first 12 months.
“Instead of honouring the full contract, they have now told us we can take our profits and leave quietly, without making a scene,” the official stressed.
At the time of its exit, UP still held three million litres of fuel in storage, which the official claimed the Government was now attempting to absorb into the CPC’s stock.
In this context, UP employees had been handed termination notices on 8 January, informing them that their last working day would be Friday (7).
A letter from UP Chief Executive Officer (CEO) Nigel Simonsz, seen by The Sunday Morning, cited “unforeseen circumstances beyond the company’s control” as the reason for the layoffs.
“This has been a difficult decision, and we sincerely appreciate the hard work and effort that you have contributed to the business,” the letter read.
Employees were also instructed to return all company assets by their final working day, confirming that UP had no intention of continuing its Sri Lankan operations.
However, affected workers have written to the Ministry of Energy, alleging that UP had violated Sri Lankan labour laws by failing to provide severance packages.
The letter, also seen by The Sunday Morning, states: “We were given letters on 8 January stating that the company is undergoing restructuring and can no longer retain us. We were given only 30 days’ notice, with no compensation whatsoever. We understand this is against Sri Lankan labour laws and seek urgent Government intervention. This company is taking its profits and running away to Australia.”