• Deviations from initial conditions set by Govt. to cause losses to CPC 

The deviation from the initial conditions set forth by the Government when deciding to further liberalise the petroleum sector two years ago has caused the State-owned Ceylon Petroleum Corporation (CPC) to incur losses.

As reliably learnt by The Sunday Morning, the three new petroleum sector players – Sinopec, RM Parks, and United Petroleum – were initially supposed to pay the Government of Sri Lanka a total of 1% of their total monthly income as a royalty payment. However, this condition, which was part of the initial tender requirements, was later removed by the Power and Energy Ministry.

Therefore, it is further learnt that aside from the initial deposit kept by these three players, no other payment was being made to the Government or to the CPC for using the CPC’s registered fuel stations and for using its storage facilities and oil pipeline for distribution.

Additionally, The Sunday Morning learns that an initial requirement mandated these companies to keep their rupee earnings without converting them for a period of nine months. This condition has also allegedly been violated, as the companies are now reportedly converting their local earnings into dollars to import petroleum products.

According to the Annual Report of the CPC presented to Parliament in 2019, the CPC, as the market leader, owned over 80% market share at that time and operated 1,300 filling stations. It refined approximately 30% of its product requirements through its refinery, with the remaining 70% supplied via importation of refined products. 

Additionally, the corporation held a two-thirds interest in its subsidiary, Ceylon Petroleum Storage Terminals Limited (CPSTL). However, following the liberalisation, the CPC has lost a total of 600 filling stations.

As alleged by the Trade Unions (TUs) attached to the petroleum sector, the filling stations, previously operated under the CPC, had been transferred without any payment. 

TU charges 

Speaking to The Sunday Morning, Ceylon Petroleum Common Workers’ Union (CPCWU) President Ashoka Ranwala stressed that his TU and a number of others had protested against the handing over of these fuel stations to international companies, but the authorities had paid no heed.

“Many former CPC management officials are now holding higher positions in these private companies. The Minister is punishing those who are opposing these moves, while higher officials are reaping advantages. We are attempting to mobilise a significant force against these actions by the CPC and the Government. 

“If they had sold off these stations, funds should have been allocated to the CPC or the Government, but nothing of the sort has occurred. No royalties are being received either. We are essentially giving away our market for free, without any benefit to the country,” he explained.

“When we lose our best fuel stations, the CPC will be forced to step away from the business,” lamented Ranwala.

As per the initial Cabinet paper, the companies were to be selected based on their ability to import fuel and operate without forex requirements from the Central Bank of Sri Lanka (CBSL) and other banks for the first few months of operations. 

Further, the CPC was to be the service provider for logistics, stocking, and distribution with a service fee charged from the companies. Selected outlets of the existing 1,190 Ceypetco outlets and new outlets were to be made available for the Lanka Indian Oil Company (LIOC) and new companies that were to be selected. The refinery was to be operated by the CPC.

Not Govt.’s to sell

In this backdrop, Energy Trade Union (ETU) President Ananda Palitha said that the fuel stations handed over to new companies were not Government-owned but had been held under agreements with the CPC for over 15 years. He emphasised that the CPC could not acquire these stations nor hand them over to others.

“These fuel stations deposited a security bond when entering into agreements with the CPC and obtained loans from the CPC to develop the filling stations. Thus far, the CPC has lost nearly 700 filling stations, including 100 stations it owned, with 110 given to the Indian Oil Corporation (IOC). 

“Currently, the CPC is fulfilling the country’s kerosene demand, as none of the other companies have agreed to sell kerosene. The IOC, Sinopec, and RM Parks only sell petrol and diesel,” he stressed.

Prior to opening the local petroleum market to international companies, Minister of Power and Energy Kanchana Wijesekera highlighted that the CPC had a large number of employees, leading to high levels of corruption and wastage, compounded by a shortage of dollars in the country.

According to Palitha, several conditions had been introduced, including a 1% royalty, an independent monitoring body, and a requirement for companies to import petroleum products using their own foreign exchange. “However, none of these are in operation at the moment,” he said.  

As per the initial plans, for nine months, sales in rupees could not be converted into foreign exchange, with funds allocated only after one year. “But there are no funds in their accounts now as they use the earnings and convert those into dollars to import petroleum products,” Palitha stressed.

“The Minister removed the 1% royalty on total sales, which was not included in the pricing formula, and instead imposed an additional Rs. 50 per litre. The prohibition on converting rupee earnings to dollars was lifted, allowing immediate conversion upon sale. There are no dollar deposits with these companies as they are using them. 

“The tender conditions outlined in a June 2023 Cabinet paper have been removed, and there are no funds in their accounts as agreed. The Government claimed that petroleum products would be sourced at competitive rates. However, the price formula and independent commission have not been established, and Sinopec has reported substantial profits,” Palitha shared.

Domestic market transition 

The CPC’s monopoly on import and distribution ended in 2003 when a significant portion of petroleum distribution was awarded to the LIOC. This transition marked the establishment of a duopoly in import and distribution of key petroleum products. Subsequently, numerous players entered the market for importing and distributing various categories such as lubricants, bunkering fuel, and bitumen.

In early 2005, the then Government sought to negotiate with Bharat Petroleum Corporation Ltd. (BPCL) for the sale of 49% ownership (a departure from the previous policy of selling 100% shareholding) of the third retail company, along with its management rights, and for 33.33% ownership of the Common User Facility (CUF) company, for a total consideration of $ 84 million, through an open competitive bidding process. However, this attempt was unsuccessful.

According to statistics, Sri Lanka’s fuel imports in 2021 totalled $ 3.7 billion, marking a 47% increase from the previous year. In the first five months of the following year, imports surged by 38.5% to $ 2.38 billion.