The Government is in the final stage of negotiations with the three finalised multinational oil and gas companies that are ready to enter the fuel retail market in Sri Lanka, according to Ministry of Power and Energy Secretary M.P.D.U.K. Mapa Pathirana.

It is understood that the agreements will be signed following the last round of negotiations.

Pathirana told The Sunday Morning that the agreements would be signed with the three companies soon after negotiations had been completed. According to him, the three companies will be given 150 fuel stations each and will be allowed to sell fuel at a rate below that which has been declared by the Government under the existing fuel pricing formula.

The Secretary said that the agreements would be signed once the negotiations had been completed and as such, the prices would be decided by each company.  

The Cabinet of Ministers has granted approval to award licences to China’s Sinopec, Australia’s United Petroleum, and RM Parks of the US, in collaboration with multinational oil and gas company Shell PLC, to enter the fuel retail market in Sri Lanka. 

In a Twitter message, Power and Energy Minister Kanchana Wijesekera said that the Energy Committee and other relevant procurement committees had given their approval and recommendation to award the three companies the licences to operate. 

The Minister stated that the three companies would each be allocated 150 dealer-operated fuel stations, which are currently operated by the Ceylon Petroleum Corporation (CPC). A further 50 fuel stations at new locations would be established by each selected company, he said. 

They would be granted a licence to operate for 20 years to import, store, distribute, and sell petroleum products in Sri Lanka, the Minister tweeted. 

It is reliably learnt that the new companies have been assured of a cost-reflective pricing model for petroleum products in the market once they commence operations. 

The road to entry 

Initially in October last year, Sri Lanka shortlisted 13 foreign companies following the evaluation of all 26 proposals received in response to the Expressions of Interest (EOIs) called by the Government from reputed companies established in petroleum-producing countries for importation, distribution, and sale of petroleum products in Sri Lanka on long-term agreements. 

The decision to open the petroleum market for more foreign players once again came as the Government struggled to secure close to $ 500 million monthly to import fuel amidst the worst foreign reserves and currency crisis faced by the country last year. 

The EOIs were requested in July and it was said that the Power and Energy Ministry had received proposals from companies interested in the petroleum business based in India, UAE, Saudi Arabia, US, China, Russia, UK, Malaysia, Norway, and the Philippines. 

The Government anticipates entering into long-term contracts with the CPC to ensure a continuous supply of petroleum products to Sri Lanka, whilst engaging in business using existing fuel stations owned or to be opened by the CPC as well as the infrastructure facilities of the Ceylon Petroleum Storage Terminals Ltd. (CPSTL), based on a facilitation fee.

As per the initial plan announced by the Government, the foreign firms must ensure that all products comply with all Sri Lankan quality standards and parameters for petroleum products. The Power and Energy Ministry will also facilitate the development of new fuel stations and storage terminals depending on the requirement of the company post commencing operations in Sri Lanka. 

The process was supposed to be completed last year, but it has been delayed for more than six months due to reasons not known to the public. 

As the market leader with over 80% of the market share, CPC is operating over 1,300 filling stations countrywide. The CPC refines around 30% of the product requirements through the refinery and the balance is supplied via importation of the refined products. CPC has a two-thirds interest in CPSTL, which has been established with the aim of storage and distribution of petroleum products. 

TU criticisms 

Nevertheless, the Government’s attempt to open up the petroleum market for foreign players has received criticism from the trade unions attached to the petroleum sector, which claim that this is merely an attempt to sell off public property.  

“If the petroleum sector is opened up to the private sector, there should be a pricing formula. A regulator and a commission should be established and a separate act should be formulated. This falls under the Public Utilities Commission of Sri Lanka (PUCSL), but it is yet to be included in that. 

“The Minister recently said that a new regulator would be established when new companies arrived. Yes, a new regulator should be established and an independent official should be appointed to those regulatory bodies,” Energy Trade Union (ETU) Convenor Ananda Palitha told The Sunday Morning. 

Palitha charged that opening up the petroleum sector would not solve the issues faced by the CPC. He stressed that it had initially been said that there were around 5,000 employees at the CPC, but that operations could be carried out with around 500 employees. 

“They say fuel prices are high because of the salaries and other liabilities that the CPC has regarding its employees, but it was recently revealed that around 300% of overtime had been paid to employees. Nothing has changed. The General Manager is saying that there are vacancies for 1,200 employees at the CPC,” he said. 

Palitha went on to say that the CPC had not received a single dollar as an investment for the opening up of the market. 

“In 2002, the Indian Oil Corporation (IOC) gave us nearly $ 70 million. Back then, the CPC gave up its best-performing fuel stations to the IOC and it is doing the same this time as well. They are now giving the 150 best-performing fuel stations. Around 60% of these fuel stations are located in the Western Province and the majority of the stations that will be given to the foreign companies are amongst these,” he stressed.   

He added that even though these companies had not invested a single dollar in Sri Lanka, after the completion of the first year, they would be entitled to gain profits in dollars. “They will be entitled to dollars according to the exchange rate on the day the transaction occurs. Even if the dollar rate drops below the current rate, payments will have to be made according to the rate at which the goods were imported,” he stressed. 

Palitha alleged that neither the country nor the CPC would benefit from the investment, while only a few individuals would feel the benefits.