As Chinese-based Sinopec commenced operations in Sri Lanka last week, poised to rake in significant profits, a cloud of uncertainty hangs over the eagerly anticipated entry of two shortlisted US and Australian-based petroleum companies, RM Parks and United Petroleum.
Sinopec’s commencement of operations coincided with a notable increase in local fuel prices by the Government.
Allegations by Trade Unions (TUs) in the petroleum sector suggested that Sinopec began distributing fuel from the shipment that arrived three months ago. This shipment, carrying a total of 20,000 MT of fuel, is expected to yield profits of nearly Rs. 900 billion. The price of a litre of petrol, initially around Rs. 230 when it arrived at ports, has now escalated to Rs. 360 with last week’s price revision.
As per the latest fuel price adjustments announced on 31 August, the Ceylon Petroleum Corporation (CPC) raised the prices of a litre of octane 92 petrol by Rs. 13 to Rs. 361, while octane 95 petrol saw a substantial increase of Rs. 42 to reach Rs. 417 per litre. Auto diesel’s price rose by Rs. 35, making it Rs. 341 per litre, and super diesel increased by Rs. 1 to reach Rs. 359 per litre. Kerosene oil also saw a hike of Rs. 5, reaching Rs. 231 per litre under CPC pricing.
However, on Friday (1), Sinopec Lanka announced its fuel prices, offering some relief to consumers.
It priced octane 92 petrol at Rs. 358 per litre, octane 95 petrol at Rs. 414 per litre, auto diesel at Rs. 338 per litre, and super diesel at Rs. 356 per litre, with kerosene remaining unchanged at Rs. 231 per litre.
This makes Sinopec’s prices slightly lower than CPC prices for most fuel types, except for kerosene, which remains consistent.
The Chinese conglomerate Sinopec, which was the first to sign an agreement with the CPC, only began its operations over 100 days after the agreements were signed. This is in stark contrast to the initial expectation that Sinopec would commence operations within 45 days.
Meanwhile, Australian-based United Petroleum, which signed agreements with the CPC on 8 June, has not provided a definitive date for the commencement of its operations in Sri Lanka and it is yet to finalise its agreements with the CPC, The Sunday Morning reliably learns.
At present, the local fuel business in Sri Lanka is predominantly operated by Indian companies, with the Chinese giant joining recently, in addition to the CPC which is the State-owned entity.
TUs express discontent
Petroleum sector TUs, which have strongly opposed allowing foreign companies to enter the local market, have now expressed their discontent with the Government’s recent decision to increase fuel prices while keeping prices from Sinopec unchanged. They contend that this move appears to favour Sinopec, potentially allowing the company to reap higher profits at the expense of Government-run operations.
Speaking to The Sunday Morning, Petroleum General Employees’ Union President Asoka Ranwala voiced his concerns, stating: “The authorities are helping the Chinese company to earn profits. This is why they have increased the prices. Who on earth would promote someone else’s company instead of their own? That’s exactly what Minister Kanchana Wijesekera is doing right now.”
Ranwala further criticised recent price hikes, emphasising that they had been imposed both when the ship carrying fuel arrived in the country and again when the fuel had been released to the market last week.
Ranwala charged: “This is a conspiracy to attract the public to the newly-entered Chinese company. They don’t want to give a concession to the public. A litre of petrol which cost around Rs. 230 when it arrived at port has now been sold at around Rs. 360.”
Ranwala highlighted that the recent price increase resulted in nearly Rs. 900 billion in profit from a 20,000 MT shipment, which was brought in by Sinopec and stored at the Kolonnawa terminal, owned and operated by the Ceylon Petroleum Storage Terminals Ltd. (CPSTL) and distributed by the CPC.
Ranwala also criticised Power and Energy Minister Wijesekera, alleging that his actions appeared to favour companies with close ties to him, raising concerns about transparency and fairness in the country’s fuel market. The Minister had earlier rejected allegations which had implied that one of the new players was connected to him, challenging the TUs to prove the charge.
The selection process
Sri Lanka’s decision to open its petroleum market to international players has been driven by the urgent need to secure approximately $ 500 million monthly for fuel imports amid severe foreign reserves and currency crises.
This strategic move has resulted in significant agreements with prominent international petroleum companies, with Sinopec being the first to sign on 22 May, and RM Parks Inc. in collaboration with Shell following suit on 8 June. These long-term contracts are centred on the importation, storage, distribution, and sale of petroleum products within Sri Lanka.
This transformative development is the culmination of a rigorous selection process that began in October of the previous year.
Sri Lanka carefully shortlisted 13 foreign companies from a pool of 26 proposals received in response to Expressions of Interest (EoIs). These EoIs were sought by the Government from reputable petroleum companies operating in oil-producing countries, aiming to establish long-term agreements for petroleum product trade in Sri Lanka.
The Power and Energy Ministry evaluated proposals from companies hailing from diverse countries, including India, the UAE, Saudi Arabia, the US, China, Russia, the UK, Malaysia, Norway, and the Philippines.
Subsequently, selected companies were invited to submit detailed proposals in response to a Request for Proposal (RFP) document. These proposals underwent rigorous scrutiny by both the Cabinet Appointed Special Committee (CASC) and the Technical Evaluation Committee (TEC), leading to the recommendation to award contracts to three companies: M/s Sinopec Fuel Oil Lanka (Pvt) Ltd., M/s United Petroleum (Pty) Ltd., and M/s RM Parks in collaboration with Shell PLC.
The approval from the Cabinet solidified the selection of these three companies.
Per the agreements, each of these companies was granted 150 dealer-operated fuel stations, which were previously under the management of the CPC.
Moreover, they secured licences to operate for an extensive 20-year period, during which they would be responsible for importing, storing, distributing, and selling petroleum products in Sri Lanka. To further expand their presence, each selected company would establish an additional 50 fuel stations at new locations.
However, while Sinopec has already initiated its operations in Sri Lanka, there is uncertainty surrounding United Petroleum, the Australian-based company, regarding whether it intends to proceed with the agreements.
No specific commencement date has been announced for RM Parks, the company from the US, to begin operations in Sri Lanka.
Meanwhile, attempts to contact Power and Energy Minister Kanchana WIjesekera, Secretary M.P.D.U.K. Mapa Pathirana, and CPC Chairman Uvais Mohommed were futile.