• CPC has to abide by Govt. decision on price hikes
• Govt. has not approved price hike despite requests
• CEB arrears to CPC at Rs. 96 billion at end 2021
• SriLankan Airlines owes CPC $ 300 million
• Current priorities medical sector and power generation
• CPC salaries are paid based on the approved salary scale

By Asiri Fernando Despite the Ceylon Petroleum Corporation (CPC) having repeatedly requested a price hike, the Government is yet to approve a revision, given the impact it would have on various sectors and the public, and therefore the CPC has to abide by the Government’s decision, said CPC Chairman W.W.D. Sumith Wijesinghe, in an interview with The Sunday Morning. This is despite the CPC having to incur a loss of Rs. 21.42 per litre of petrol, Rs. 19.50 for 95 octane petrol, Rs. 53 on auto-diesel and Rs. 36 per litre for super diesel, as per the international oil market prices of last month. The CPC is also further struggling to manage in the backdrop of the hike in prices by Lanka Indian Oil Company (LIOC) and panic buying by some customers, along with financial challenges. As for sourcing the necessary US Dollars for fuel imports, he said this had now been enabled with the securing of the $ 500 million Indian Line of Credit for fuel procurement and tenders for 90- and 180-day repayment Letters of Credit (LCs). In the course of the wide-ranging interview, Wijesinghe also spoke about plans to build a new fuel refinery, the agreement with LIOC to develop the Trincomalee Oil Tank Farm, and key reforms required. Following are excerpts of the interview: What is the status of the total debt owed by the CPC (Ceylon Petroleum Corporation)? At the time the present management took over duties at the end of December 2019, the CPC owed State banks $ 3.36 billion. By February this year (2022) the CPC had reduced our debt to $ 2.9 billion (as of 1 March 2022), having paid back $ 400 million in dues. So far, we have managed to honour the Letters of Credit (LCs) at maturity without defaulting on payments for fuel and oil shipments with the assistance of State banks (Bank of Ceylon and People’s Bank) and the Central Bank of Sri Lanka (CBSL). The President had ordered the CEB to pay its dues to the CPC; has this happened? If so, to what extent? At the time this management took over duties, the Ceylon Electricity Board (CEB) had arrears amounting to Rs. 94 billion, which it needed to settle with the CPC. That was by the end of 2019. By March 2020, it repaid Rs. 50 billion with the intervention of the Treasury, bringing the arrears down to Rs. 48 billion. However, its dues to the CPC rose to Rs. 96 billion by the end of 2021. With the President’s directive, the CEB has made some payments this year, bringing down the amount owed to the CPC to Rs. 61 billion as of today [2 March]. It is continuing to make part payments for past dues. At present, the CEB makes upfront payments to purchase fuel from us for power generation. The need to make upfront payments for fuel used by the CEB was a request that the CPC and the Ministry of Energy has been seeking for some time now. I see this outcome as progress. How much do other State institutions owe the CPC? For example, SriLankan Airlines owed the CPC around $ 330 million in arrears. However, it has repaid $ 30 million after resuming operations following Covid-19 disruptions. Now, SriLankan Airlines buys the fuel it needs by making upfront payments. LIOC has hiked its fuel prices for a second time, putting more pressure on the CPC fuel station network. How is the CPC coping with the added demand? Since part of the LIOC demand has shifted to the CPC, we are trying to manage this unexpected incremental demand. However, CPC is serving the demands of the public, industry, and other users, even though panic buying by some customers aggravates the situation. CPC is managing under various financial challenges. With the price of a barrel of crude oil pushing past $ 100 and given the LIOC’s price revision, how long can the CPC sustain operations without a price revision? The CPC has repeatedly requested a price hike, but as a Government, taking into account the impact on various sectors and the public, the deciding authorities have not approved such a price revision. We have to abide by the Government’s decision. As per the international oil market prices of last month [February], the CPC will have to incur a loss of Rs. 21.42 per litre of petrol, Rs. 19.50 for 95 octane petrol, Rs. 53 on auto-diesel and Rs. 36 per litre for super diesel. The CPC also continues to provide kerosene to customers at a loss of Rs. 64 per litre. This is the loss the Government has to bear without a revision in fuel price. How much fuel does the CPC plan to import for March and April? According to our calculations, on average, the CPC needs to import 160,000 MT of diesel and 90,000 MT petrol per month. For the month of March, we have ordered 190,000 MT of diesel and 100,000 MT of petrol with the intention of maintaining a buffer stock. The diesel we import is inclusive of what is needed for power generation. We plan to import two shipments of crude oil for the refinery for the month of March. Each shipment will bring 90,000 MT of Brent crude oil. In the last few years the diesel usage was around 5,000-5,500 MT per day. However, in January and February this year, usage went up to 6,000 MT per day – a 500 MT increase. For petrol, it was on average 3,000-3,200 MT per day last year. However, like diesel, petrol usage is up to 3,500 MT per day in January and February this year. Therefore, we decided to order more than the average requirement. The quantity we import is apart from the fuel the LIOC imports for its network of fuel stations. For the month of March, our total import bill would be between $ 350-400 million depending on international market price fluctuations. Which essential services does the CPC provide fuel for on a priority basis to ensure their continued operation? The January to April period is the dry season, so the CEB and Independent Power Plants (IPP) use more fuel for power generation during that period. Under normal circumstances they require about 2,000 MT of diesel and a similar quantity of furnace oil. Currently, our prioritisation is health – medical sector and power generation, then defence, public transport, industries, agriculture, and fisheries. Has the CEB supplied US Dollars to the CPC to make payments for the fuel imported for power generation? Even though we requested it to pay its outstanding forex arrears in US Dollars, the CEB doesn’t earn in dollars, it gets payments in rupees. It needs to get Central Bank support to get the dollars needed for fuel imports. Following the CBSL intervention, up to now, we have got the required dollars to make importation payments. Have the CPC, Treasury, and CBSL worked out a process to source the necessary US Dollars for fuel imports? One of the issues we faced during the last 12 months was that the tenders we got were short-term or advanced payment tenders, so we had to find dollars to settle debt and make advanced payments. However, now we have secured the $ 500 million Indian Line of Credit for fuel procurement. Also, the new tenders we are securing are 90- and 180-day repayment LCs, so we have managed to get some breathing space to make payments. Is there a backlog of fuel tankers waiting to receive payments to unload fuel consignments at the Colombo Port? Not at the moment. As per the order plan, shipments arrive on time and we start discharging fuel on time without delays at the port. Therefore, there are no demurrage charges which we incur. During the last few months, due to payment issues and delays, we incurred some demurrage charges. There was a plan to build a second, modern fuel refinery on the southern coast; what is the status of that project and when will it be completed/operational? And what is the current operational status of the Sapugaskanda Refinery? There is a plan by the CPC to set up a new 100,000 barrel [crude oil] refinery adjacent to the current one in Sapugaskanda and there are also plans to upgrade it. The CPC technical staff has already carried out a feasibility study about it. Is the CPC overstaffed? There are allegations that the CPC is paying some members of the staff exorbitant salaries and that new recruitment is ongoing, even though the CPC is in a crisis. How do you respond to such allegations? The CPC has an approved cadre of 5,200. However, at present only 4,600 are employed. Salaries are paid based on the approved salary scale. Higher-ranking officers with high responsibilities are paid higher salaries compared to other officers with fewer responsibilities on par with the salary scale approved by the Government and on par with what is paid by organisations such as the CEB and the Water Board. The CPC and LIOC entered into an agreement to develop the Trincomalee Oil Tank Farm recently. When will the refurbished tanks be ready to store fuel and what type of fuel/quantity will be bunkered?   As per the agreement, the CPC received control over 24 tanks for our operations; another 61 are set to be used in a Joint Venture. At present we are in discussion with several ministries and Government agencies about clearing some obstacles and overgrown forestry, which we need to remove before renovation of the tanks can take place. The CPC officials have begun an inspection of the tank and the facilities to identify the relevant repairs and upgrades needed to make them serviceable. That report is expected soon. The study will also decide which tanks can be used to store which type of fuel. Based on that report we plan to begin renovation of the tanks. I believe within one to two years’ time we can get the renovations done in stages and complete the project. At present, Sri Lanka (CPC) has a fuel storage capacity of 150,000 MT of diesel and 100,000 MT of petrol. The Trincomalee tanks, once completed, will see us adding 240,000 MT of new storage capacity for petrol, diesel and fuel oil. The Trinco Tank Farm will also help us supply the Northern, North Central and Eastern Provinces with fuel with less transit time and cost. I anticipate that we can recover the investment put in to develop the Trincomalee Oil Tank Farm within five to six years. Further, importing fuel to Trincomalee will see a reduction in shipment cost of the consignments. This will allow Sri Lanka to increase its fuel stock to about 45-50 days or more than one-and-a-half months. The CPC has a plan to establish another tank farm in Hambantota, to cater to the fuel requirement of the Southern and Uva Provinces and parts of the Sabaragamuwa Province. At present, we have supplied those areas with fuel via bowsers or rail links. Once the Trincomalee and Hambantota Tank Farms become operational, it will help reduce traffic at the Colombo Port, reduce congestion in Colombo, and eliminate environmental issues caused by the many fuel bowsers on the road. The CPC may also be able to reduce its transport cost by nearly Rs. 1 billion each per year. Given the current situation at the CPC, what key reforms would you enact if possible? We plan to decentralise our distribution network with the Trincomalee and Hambantota Tank Farms. A new, modern refinery will be another key change we plan to bring in. The current refinery, which is ageing, made Rs. 11 billion in profit last year. The CPC makes losses by importing and selling the product. Therefore, we think if we expand our refinery capability and capacity, we will be able to reduce losses. The CPC has resumed fuel bunker business, which saw around $ 50 million in services over the last year. We have also entered the lubricant market; currently our market share is 6%. Our goal is to improve that to 20% by the end of this year.