Advertise here

Heavy Fuel Sell Out

By Camelia Nathaniel

The Ceylon Electricity Board’s (CEB) cost estimation for 2013 was Rs 256 billion, while Rs 33 billion of this figure was obtained through the increase in the price of Heavy Fuel Oil (HFO) from Rs 65 to Rs 90 per litre as of April this year. The Ceylon Petroleum Company (CPC) claimed that the increase in the pricing would enable them to recover the losses incurred in supplying fuel to the CEB. However, during the first half of this year, since the CEB did not require the full complement of fuel as hydro power was at its peak, the CPC exported the HFO initially intended for the CEB (See box at bottom-left for rates).

According to the Advisor of the Electricity Consumers Association Bandula Chandrasekera, the Petroleum Corporation, in spite of claiming to be at a loss through the supply of oil to the CEB, is in fact profiting between Rs 10 to 15 per litre of oil sold to the CEB additionally through false figures.

Accordingly, he said that the CPC has made between Rs 10 to 14 billion for this year alone. “Therefore, it is evident that the CPC is taxing the poor people in order to cover up their own sins due to the rampant corruption taking place within the CPC. The CEB too has been furnishing false figures in order to mask the actual profits made and indicate losses to hoodwink the people.”

Speaking to The Sunday Leader the president of the CPC trade union Ananda Palitha stated that while a litre of HFO was supplied to the CEB for Rs 90, the CPC in fact exports this same oil to a foreign country for a lesser rate. “Hence, we won’t accept that the CPC is running at a loss due to supplying oil to the CEB. If the CPC can afford to supply the HFO to a foreign country at a lower rate, why can’t they supply the CEB at the same low rate, instead of burdening the people just to cover up the corruption taking place within the CPC?”

Blatant lie

“For the CPC to determine that they are running at a loss they must first activate the pricing formula. But without a proper pricing formula how can they determine the losses? They simply cannot add on all the losses of the CPC and blame it on the CEB and get away. Without open tenders and embarking on long term agreements, the CPC’s claim that they are selling fuel at a loss is a blatant lie.”

In fact, he pointed out that the CPC is losing out because they have not improved the standards of the oil refinery or upgraded it, which resulted in the increase of production costs of HFO.

It was due to the lack of proper storage facilities for HFO that they had to sell it at a low price, he said. “As a union we totally disagree with the theory that the CPC is running at a loss due to them having to supply HFO to the CEB at a loss. The reason is that since June, 2006 the CPC has not implemented an open pricing formula. Similarly, the CPC does not follow a long term profitable fuel purchasing agreement either.
The Auditor General amply highlights this factor in his report which clearly indicates that the CPC had lost a colossal Rs 9000 billion last year alone due to improper purchasing practices.

The Committee on Public Enterprises (COPE) report also endorses that sentiment by declaring that the purchasing of fuel by the CPC, sans transparency and credibility, has resulted in the increase in losses incurred by the CPC. When the CPC had the opportunity to purchase fuel from some of the world’s best refineries they did not do so. In 2007, we have purchased fuel from the Singapore open market without having to pay a cent as premium.
In the 1980’s and 90’s the CPC entered such profitable long term agreements,” said Ananda Palitha. However, he pointed out that now what is happening is that due to this method of spot purchasing without a proper tender procedure, the CPC is paying an additional cost of between US$ four to eight per barrel of crude oil.

This is a primary reason for the cost of the CPC to increase and also has contributed to the increase in fuel prices, he added. Due to the fact that the refinery not being upgraded, the country is producing excess HFO which the CPC are unable to store and this has resulted in the increase in losses to the CPC. Palitha accused the CPC of trying to hide their faults by constantly blaming the CEB for their losses, but they are selling the same HFO which they sell to the CEB at Rs 90 per litre at 20 to 30 rupees lesser to foreign countries. During the recent past, quantities ranging from 20 to 30 metric tons have been shipped at various instances, he pointed out.

Pricing formula

One of the main sectors in the country that affects all spheres of life is the power sector, and the CPC is calculating the pricing formula going by international rates rather than calculating the cost of refining locally and internationally and arriving at a moderate pricing.
However, the irony is that currently no one in the CPC knows what the accurate pricing formula is.

“How can the CPC claim to be incurring losses when they don’t have accurate figures or even a proper pricing formula to calculate these figures? The main fuels that contribute to the lives of the people and the country’s economy are HFO, kerosene oil and diesel, and the CPC should be able to supply these fuels at a price which is not a loss to them, and this is possible. But in order to do so they must follow a proper pricing formula. Since 2002, we have been asking the CPC to construct a refinery. The foundation stone was laid in 2008, but let alone construct a new refinery, the government won’t even renovate the existing ones,” pressed Palitha.

The COPE report clearly states that the reason for the losses in the CPC is that suitable people have not been appointed to the right positions. “The CPC that says they are still losing by supplying HFO to the CEB at the current rate, somehow manages to export this same fuel to foreign countries at lower rates. How is this possible? Moreover, even though the production of HFO has increased the CPC never reduced the prices for the CEB.
”In order to streamline the CPC and transform it into a profit making venture, firstly, a proper pricing formula must be devised as currently the officials don’t even know what the production cost of a litre of diesel is.

How did the CPC that does not even have a proper pricing formula decide to increase the fuel prices claiming to be running at a loss? However, the reason that the CPC is not making profits is because there are flaws and corruption in the purchasing patterns, storage, and even supply patterns,” he said.
According to the CPC union president, the pipeline that was built spending billions from the port to Kolonnawa is dilapidated, and the CPC brought the pipelines needed to repair these pipes in 2002 but so far nothing is done. “Yet the CPC pays US$ 20,000 to 30,000 dollars as demurrage for every oil tanker that brings oil.

This expense runs into hundreds of thousands of dollars each year, which is a colossal waste. While the CPC has the facilities to spend US$ 3 to unload the fuel at Muthurajawela, due to the fact that the Muthurajawela facility is not fully utilised, they are paying thousands of dollars in vain.
“In order to cover up all these corrupt actions and wastefulness of the CPC, it is finally added on to the burdens of the consumer by way of increasing the prices of fuel. Our neighbour is selling HFO at a much lower rate, and Sri Lanka too can in fact sell it at around Rs 60. On several instances the CPC had imported HFO that was considered substandard, but to date no compensation was charged from these suppliers,” he said.

According to estimates and CPC sources, the state-owned Ceylon Petroleum Corporation (CPC) suffered Rs 8 Billion in losses last year alone. However, while the CPC keeps blaming the CEB for their losses, it is no secret that corruption is rampant within the CPC and this is one of the main reasons for the losses.
Be it corruption or mismanagement, the end result is that it is the poor consumer that is made to suffer the burden, while those who are responsible for the corruption are raking in the profits. Therefore, it is clearly evident that the whole power and energy sector as well as the CPC needs to be restructured and all corrupt officials need to be brought to book irrespective of their positions.

Among the main institutions that have come under the scrutiny of the 31-member parliament committee is the cash-strapped Ceylon Petroleum Corporation (CPC) and the Ceylon Electricity Board (CEB). According to COPE, when the Muthurajawela distribution and storage terminal has a storage capacity of around 85% and could be distributed through new technology the CPC had been using the Kolonnawa station for storage and distribution.
Hence, it is evident that while the CPC has the infrastructure to improve their facilities and minimise the losses, they are for some reason not so keen to make such improvements and minimise the wastage.

“CPC has made between Rs. 10 – 14 billion for this year alone.”
- Advisor of the Electricity Consumers Association, Bandula Chandrasekera

According to Chandrasekera, the Petroleum Corporation, in spite of claiming to be at a loss through the supply of oil to the CEB, is in fact profiting between Rs 10 to 15 per litre of oil sold to the CEB additionally through false figures. Accordingly, he said that the CPC has made between Rs 10 to 14 billion for this year alone. Therefore, it is evident that the CPC is taxing the poor people in order to cover up their own sins due to the rampant corruption taking place within the CPC.  The CEB too has been furnishing false figures in order to mask the actual profits made and indicate losses to hoodwink the people.’

——————————————————————-

“We have always been adopting this mechanism to export the HFO and this is what we are doing even today.”
- Minister of Petroleum Anura Priyadharshana Yapa

When The Sunday Leader contacted Minister Anura Priyadharshana Yapa regarding these allegations by the CPC trade union, he denied that the CPC was supplying foreign countries at lower rates. “These allegations are not true and we are exporting the excess HFO after calling for tenders. We have always been adopting this mechanism to export the HFO and this is what we are doing even today. It would be wrong to say that we are exporting HFO to foreign countries at lower rates than we are supplying the CEB, and we vehemently refute these allegations.” The minister, when asked why the CPC was supplying the CEB HFO at a higher rate than what they export it at, evaded the question by claiming that the exporting was done based on tenders.

——————————————————

—————————————————————–

“While a litre of HFO was supplied to the CEB for Rs 90, the CPC in fact exports this same oil to a foreign country for a lesser rate.”
- President of the CPC trade union, Ananda Palitha

“Hence, we won’t accept that the CPC is running at a loss due to supplying oil to the CEB. If the CPC can afford to supply the HFO to a foreign country at a lower rate, why can’t they supply the CEB at the same low rate, instead of burdening the people just to cover up the corruption taking place within the CPC?”

Comments are closed

advertise

Photo Gallery

Log in | Designed by Gabfire themes