All Norms Bypassed When Importing Fuel

By Nirmala Kannangara

Following Ceylon Petroleum Corporation’s (CPC) firm decision not to accept the consignment of 30,000 MT of substandard diesel and sending the stock back to the supplier- Unipec Singapore (Pvt) Limited, a clear signal has been sent across to all other fuel suppliers that unlike during the previous regime, substandard fuel will not be accepted under the new government, the UNP affiliated Jathika Sevaka Sangamaya (JSS) said.

The CPC’s deliberate failure to call for tenders to select fuel suppliers during the previous regime has cost the country dearly, according to the Secretary of the JSS, Ananda Palitha. Although it was the practice to call for new bidders and to select the best suppliers to supply fuel to the country, the previous management bypassed all norms and regulations when selecting oil suppliers, according to Palitha,.

“There are over 50 reputed fuel suppliers in the world and we could have obtained quality fuel from them for competitive prices. But since the then government did not want to call tenders and opted to give the contract only to a selected number of suppliers who ‘looked’ after the interest of the then higher officials in the Finance Ministry and former higher officials in the Petroleum Ministry and CPC, term of contracts of the suppliers were extended after obtaining cabinet approvals.

According to Palitha, term contracts of Swiss Singapore, Unipec Singapore, Petrochina Singapore and Enoc Singapore were always extended by the previous CPC Management and added that legal action could not be taken against the suppliers if they violate the contract.

“Earlier when tenders were called, the CPC drafted the agreement and got the Attorney General’s advices before the agreement was signed. But the previous management did not seek any legal advices but signed the contracts. Under these contracts the corporation cannot seek compensation from the supplier,” Palitha claimed.

Palitha further said how these contracts has affected the corporation financially as the world fuel prices have now hit all time low in the world market. “Russia has increased their own fuel production and the USA has reduced purchasing fuel by 30%. As a result there is excess fuel in the world market and that was why the oil prices have hit all time low these days. We know when the world oil prices are coming down and considering it, we have to call tenders. By extending the term of contracts without considering these facts, the CPC has had to pay higher prices for fuel,” Palitha alleged.

Meanwhile Palitha further said that if the fuel is unloaded from Muthurajawela instead of the Colombo port, there is no necessity to pay demurrage charges.

“No charges are imposed on the ship at the port if the fuel tanker could release fuel within four days. In the event it exceeds four days, we have to pay US $ 30,000 per day as demurrage charges. In addition to this for each one MT we have to pay US$ 3.50 as port charges. As the pipelines from the Colombo port to Kolonnawa are old and leaking, the oil tankers cannot unload the 40,000 MT under the normal pressure which is 7.5 bar. If the pipeline was in good condition, we could have unloaded the stock within three days under the normal pressure. As a result it takes around six days to unload the 40,000MT and have got to pay demurrage,” Palitha said.

Accusing all Petroleum Ministers, ministry officials, higher officials in the Finance Ministry and the CPC and Ceylon Petroleum Storage Terminal (CPSTL) Managements in the previous regime, Palitha said that it was a known secret as to why these higher officials wanted the fuel tankers to unload the fuel from the Colombo port but not from Muthurajawela.

“From every single metric ton of fuel, CPC had to pay US$ 3.5 to the port as handling charges and always paid demurrage charges as the fuel could not unload under the normal pressure. When we have our own storage facility at Muthurajawela and a 40,000MT fuel taker can be unload within two days from Muthurajawela. Knowing this still the former regime did not allow the CPC to unload the fuel from Muthurajawela. As all these higher officials ‘earned commissions’ handsomely through demurrage charges, all fuel tankers had to unload from the Colombo port,” Palitha alleged.

Palitha further said how the petroleum officials came under severe pressure from the oil supplier last week when the substandard diesel stock was rejected.

“Our officials were always accurate and whenever a substandard stock arrived, they rejected. However their opinion was not considered by the previous regime and put pressure on them and accepted the substandard oil. Although these contaminated fuel cost the country exceedingly, the officials were not bothered as they were benefitted from the commissions. As the suppliers knew that they can ‘buy’ our officials this time too, the oil supplier tried to influence them but could not as the Ministry did not interfere with our officers and we could resend the stock to the supplier,” he added.

According to Palitha, plans are now afoot to unload fuel from Muthurajawela from which, it has estimated the country could save Rs.5000 million from demurrage charges.

“According to Auditor General’s Report, in 2013 alone the CPC has spent US$ 85 lakh as demurrage charges,” he said.

He further said that although tenders have to be call from suppliers to supply fuel two months in advance the previous CPC and CPSTL managements always preferred to go for quick tenders to allow only their stooges to bid.

“Generally we call for tender for oil supply two months in advance as the suppliers need enough time to send their prices and to ready the stocks to send to Colombo. But the former management and the operations manager did not want to call tenders two months in advance and gave only 10 days notice to call bidders by creating an artificial fuel shortage. This prevented the reputed companies from sending their quotations and pave way for their cronies to send their quotations,” he said.

According to him, these cronies send various quotations even under pseudo names with the knowledge of the CPC officials.

“Knowing that only a less than handful is sending quotations, these suppliers with the blessings of the CPC send their prices increasing the premium. Although the standard premium rate for a barrel is 0.5 to 1.5 US$, these suppliers charge more than 3 US$ per barrel. Under pseudo names, the premium price varies and there are time we had to pay even more than 6 US$ per barrel as premium. Although this is a heavy loss to the corporation, it was a moneymaking business for the previous management and even for some senior managers who are still clinging on to their posts,” Palitha claimed.

According to him, if the corporation gives 60 days to submit the prices and to deliver the stock on a stipulated date on a long term contract (six month contract), the top oil suppliers in the world – British Petroleum, Reliance India, Shell and Mobile get an opportunity to send the quality fuel to the country.

“These recognized companies never increase the standard premium price like the other suppliers and they calculate the cost of a barrel of oil as per the Singapore Platte (average price of three days- the market price of the day the order is placed, the price of the day before and the price of the day after) plus the standard premium price. CPC and CPSTL do not want these companies to supply the fuel knowing that they never increase the standard premium price hence no commission for them,” he said.

He further said that these commissions were not only divided amongst the top management and the senior managerial levels but amongst the subject minister, the deputy minister and finance ministry officials in the previous regime.

“Between 2006 and 2007, Vitol Singapore was blacklisted for supplying substandard oil to the country. This company was to pay over US $ 3000 million as a fine but the blacklisting was removed by a former Chairman CPC, soon after he assumed duties and the fine was waived off. As a result, Vitol kept on sending several stocks of contaminated fuel later years,” Palitha added.

Palitha meanwhile accused the former CPC and the CPSTL managements of involving in a racket of fuel bunkering business (supply fuel to the vessels that come to Colombo, Galle and Trincomalee harbours). “The CPC and CPSTL supplied fuel to Lanka Maritime Services owned by John Keells Group, Inter Ocean Engineering owned by McLerence, Mocetty Shipping owned by Haylese, Sri Lanka Shipping and few more companies in the bunkering business.  Except for Inter Ocean Engineering owned by McLerence Group, all other companies were given fuel at a rate of 22 – 26 US$ per MT whilst Inter Ocean Engineering was given for 7 to 10 US$ per MT which was confusing. The last stock for Inter Ocean Engineering was given on January 13, 2015. As this company gave commissions to all these higher officials they were given for less than one third of the average price. Since the institution was following substandard methods, other companies got their required stocks imported making a huge loss to the CPC and CPSTL,” he alleged.

Former CPSTL Chairman (Rtd) Maj. Gen. Soyza is meanwhile accused of purchasing an Octane machine for the CPSTL from one of his friends without going for international bidders.

“As Octane machines are not manufactured, CPSTL had to go for a tender to get international bidders. When the procurement board wanted to call tenders from international bidders, De Soyza wanted to call tenders locally and only one party sent quotation for Rs 132 million and the tender was offered to him. This party is a close ally of De Soyza. It has now come to light that this company that supplied the Octane machine does not have even more than Rs. 30 million turnover annually. How can we take action against this company that does not have a bigger annual turnover if the Octane machine gives trouble in future. It is up to Minister Ranawaka to start investigations into all these dodgy contracts and malpractices,” sources added.

Meanwhile, accusations were also levelled against the CPC and CPSTL former managements for purchasing the inferior quality undersea buoy hose which ruptured last year which caused colossal losses to the corporation.

“It is questionable why CPC and CPSTL disregarded the Technical Evaluation Committee (TEC) disapproval and went ahead with placing the order with the Italian company Manuli, when we were able to purchase the best quality hose from Bridgestone Japan to the same price or for a lesser price. We have being purchasing the best quality undersea buoy hose from Bridgestone since 1970 from the time we first introduced the buoy system in Sri Lanka.

When this was raised by many officials including the TEC members as to why the Corporation wants to switch on to an unknown company and its product, the CPC Management said that they have to purchase this hose from the Italian Company since it is a quality hose and also because Bridgestone has not send their quotation. This Italian product has been banned in 48 countries including India,” sources claimed.

The sources meanwhile revealed the way the CPC and CPSTL sent a three member group that is not qualified to examine the undrsea buoy hose to Italy to examine the product.

“Instead of sending mechanical engineers, the CPC and the CPSTL sent the refinery manager and his assistant and another electrical engineer to inspect the hose. They do not have any knowledge about this undersea buoy hose but still the two managements sent these officials. This raised many questions among the CPC and CPSTL employees,” sources added.


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