The Sunday Leader

Audit Report Alerts Parliament On CPC

by Ranjith Gunawardena

The recent protest jointly organised by the Petroleum unions collective ended with the Government declaring fuel distribution as an essential service. Even the head of the National Trade Union Centre, which is affiliated to JVP member K. D. Lalkantha was also seen waiting in the queue to pump petrol.

Meanwhile the government quarter alleged that this strike was one that went beyond mere trade union demands and it was an attempt to cripple the government. The President meanwhile, said during a visit to Kurunegala on July 27, that strikes inconveniencing the public should be stopped.

However, the trade union actions greatly inconvenienced the general public, who were vehemently opposed to such actions. The Government too, should not take time in granting the reasonable demands made by the trade unions.

The Petroleum Corporation is one of the most prominent State Institutions, and it was in the midst of all this, that the Auditor General’s Department submitted a report to Parliament on the Ceylon Petroleum Corporation’s (CPC) activities. This article is based on this report.


Underground fuel pipeline at BIA


An estimate of Rs. 1,000 million was drawn up for the construction of an underground fuel pipeline network. During the previous regime, a technical evaluation costing Rs. 5 million was done in 2010, while in 2012 a detailed plan was drawn up at a cost of Rs. one million. However, on September 5, 2013 the Cabinet decided to increase the annual passenger capacity at BIA to 9 million. Due to the difficulty in obtaining grants for this project, bids with financial provisions were called, but evaluation activities were not completed even by the end of last year.


Petroleum Resources

Development Secretariat


The Audit report revealed that from 2007-2014, the Petroleum Resources Development Secretariat has spent Rs. 1,016 million and conducted deep sea research, while these findings were sold earning them Rs. 649.41 million.

Similarly, since a considerable time was spent on obtaining two dimensional earthquake data, and the data collected from the Mannar basin was insufficient, by selling this data in 2015, they only managed to earn Rs. 5.63 million, it was revealed. In 2015, Rs. 50 million was paid to the Petroleum Resources Development Secretariat to conduct a survey on the environmental impact caused by oil exploration activities. This task was entrusted to NARA Institute and on December 31, 2015 an agreement was signed while Rs. 7.43 million was paid to them as an advance. However, although the survey should have been completed before September 31, 2016, there was no progress made in this regard even by the end of 2016, according to the Audit report submitted to Parliament.


Manufacture of petroleum and

 refining activities


The Sapugaskanda oil refinery is well over five decades old and it is unable to meet the current fuel requirement. When compared with other low cost modern oil refineries, Sapugaskanda is clearly lagging behind in terms of productivity.

However the upgrading and expansion work of the Sapugaskanda oil refinery (Sorem) had not been implemented by July 15, 2016 and on December 31, 2015 the expenditure of Rs. 837 million incurred, had been listed as a non economical transaction, the audit report revealed.


Hedging transactions


Due to the hedging by the CPC, the total losses caused to the country as at December 31, 2015, stood at Rs. 1,408 million.

In relation to the hedging transactions, the CPC had been called as a settlement party over the hedging deals with several commercial banks and under the settlement deed, Rs. 7,612 million was paid to Standard Chartered Bank on June 03, 2013, Rs. 3,881 million had been paid to the Deutsche Bank on August 04, 2016. According to the audit report, by December 31, 2015, the CPC had recorded losses amounting to Rs. 13,658 million.

The Central Bank had recorded Rs. 571 million in expenditure over the CPC hedging transaction, while Rs. 568 million of it had been repaid to the Central Bank by CPC in instalments between 2011 and 2014.

In addition, as payment for services obtained from foreign lawyers over the settlement case filed by Deutsche Bank against the government, Rs. 404 million was paid by December 31, 2015. In lieu of future payments Rs. 13 million was allocated in 2015. Meanwhile, Commercial Bank had filed a lawsuit in the Colombo Commercial High Court against the CPC for a $ 8,648,300 ownership.


Fuel transportation

pipeline network


The audit report to Parliament has also highlighted the wastage caused by transporting petrol, diesel, kerosene oil, and furnace oil from the Colombo Port to the Kolonnawa refinery through the decades old pipeline network. It is also reported that these pipeline network needs urgent renovation, while some of the pipelines are said to be in an un-repairable condition.

The Auditor General in his report has highlighted that a major portion of the country’s fuel requirement is being transported to Kolonnawa refinery through these dilapidated pipeline network and pointed out that renovation and restoration of this pipeline network is an urgent requirement. He warned that by transporting fuel through these dilapidated pipelines, the country faces the risk of a serious fuel crisis.


Fisheries fuel coupon programme


With the intention of mitigating the impact caused on the fisheries community by the revision of fuel prices, the government implemented the fuel coupon programme from March 2012 to September 2013. This programme was implemented in collaboration with the Treasury and the Fisheries and Aquatic Resources Department. However, the audit report has revealed that due to administrative weaknesses, the anticipated intentions were not fulfilled.

Due to the fraud and corruption that took place in the distribution of fuel and the coupon system between the fishing vessel owners, fuel distributors and others involved in the implementation of the coupon process, the Government decided to suspend the coupon programme in September 2013.

Instead of benefiting from this fuel concession, and obtaining their fuel requirement to the total value of the coupon from the fuel distributors, they had sold the coupons at a discounted rate and obtained money and in some instances, only obtained fuel for the concession sum stated on the coupon, it was revealed.

The CPC had to pay fuel distributors an approximate sum of Rs. 3 million for fuel given on forged coupons. Further the CPC is holding a further Rs. 18 million in payments due to attachment of forged coupons, obtaining coupons of other districts and attaching them fraudulently and various other frauds. Furthermore, coupons amounting to around Rs. 6 million are still in the possession of the coupon distributor, where the CPC had refused to accept them.

The report further revealed that the CPC had obtained almost Rs. 178 million from the Treasury, above the actual value of the coupons given to the CPC distributors by the fishing boat owners, and this discrepancy had not been rectified until the end of 2016. It is also revealed that the CPC had credited almost Rs. 10 million to the accounts of the distributors from time to time, without clarification of the accuracy of payment.

Although the Fisheries Ministry had issued fuel coupons to the fishing boat owners, by August 31, 2016, almost Rs. 82 million worth of coupons that were issued to the fishing boat owners by the Fisheries Ministry had not been submitted to the fuel distributors.

Many factors including the reduction of fuel prices in the international market and the CPC being unable to reap its benefit, the fall of the rupee in 2015 in relation to the American Dollar and the exchange rate losses, the financial burden due to the excessive loans obtained, increase of taxes, the losses incurred in the sale of furnace oil and Naphtha and the losses incurred in the hedging transactions, all contributed to the heavy losses of the CPC in 2015.

The Audit report submitted to Parliament further warned that although the CPC’s financial assignments had shown some progress in 2014, due to the heavy losses incurred between 2008 and 2015, it is doubtful if the CPC can continue to function independently, without the assistance of the Government.

1 Comment for “Audit Report Alerts Parliament On CPC”

  1. So, also in Sri Lanka, oil is also big business. The addiction to fraud and rackets will never end , what with the politicians and even the PM acting like the God father of all these corrupted lot. What will there be to celebrate other than a mountain of muck of unbelievable reeking stench.

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