23rd February, 2003 Volume 9, Issue 32

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SPOTLIGHT

Chaos rules

This is the first in a new series commenced by The Sunday Leader. 'Insight' will focus on an in-depth analysis of a topic affecting the lives of the general public and the country. We kick off with a look at the transport sector 

The trouble with bus travel 

Ask any commuter, if given a choice whether he or she would choose to undertake bus travel and the reply would be the predictable firm 'No.' It is those who lack the luxury of a privately owned vehicle who would undertake a bus journey. Or else, who would want the package deal of delays, hassles, and pickpockets to deal with while commuting to a destination.

To say the least, the service is bad, or is simply no service at all. And this is an admission made by no lesser a person than the Chairman, Sri Lanka Transport Board, U.L.M. Farook who claims that the service could be improved only on the day  the place is de-politicised and not otherwise.

Little wonder then that the SLTB incurs losses to the tune of over Rs. 200 million on a monthly basis -a reflection of how unhealthy the service is.

The statistics are daunting too. There are 13 employees per bus according to the SLTB Chairman, and that means there are seven employees in excess per bus, which  places an enormous burden on an institution that has become a haven for politically appointed stooges and thieves.

The SLTB had in its custody a fleet of 9,368 buses before the JVP insurgency in 1989. Destruction of public property during that time largely targeted the buses. In post-1989, 1,000 buses were auctioned though it brought in  little money for an institution that was cash strapped.

 Today out of the remaining 8,368 buses, about 1,500 are not running due to  the lack of necessary spares, maintenance and related matters. The depot charts require 6,878 buses plying daily and in actual fact, there are only 4,500 buses that could be regularly used. There is an obvious shortage of over 1,000 buses to meet the public demand -  an impossible target to meet at present.

Corruption

Farook claims that the history of making a fast buck by purchasing inferior spares, widespread corruption, ineffective management and lack of maintenance has contributed to the sorry state of the service.

And then it is a return to the political question. The SLTB is excessively staffed, and Rs.120 million is spent on the monthly salaries of its 23,000 employees alone. This is a huge burden on an institution that is barely able to survive.

Adding to the burden were the recent diesel price hikes. The first hike resulted in the SLTB having to sustain a loss of Rs. 30 million and after the second one, Rs. 15 million.

" There is only one way to improve and that is to bring discipline to the institution,  and introduce a heavy retrenchment programme" says the disgusted Chairman. So far, people have met him including top politicians to only push for promotions, transfers and salary increases. Farook, a one-time deputy minister of transport himself, claims that he is eagerly waiting for someone to call him for a discussion on how to improve the sector and already more than a year has lapsed since the UNF took office, but no such luck.

One of the biggest drawbacks according to SLTB sources is the number of political promotions that have occured over the years. It has created a situation where there is a less number of drivers and conductors and too many senior staffers who have no proper function. As the institution is already overstaffed, recruiting drivers and conductors is also not possible, though it is done at regular intervals adding to the institution's woes.

A circular was recently issued requiring each spare part purchased to repair a bus  be displayed at the particular depot. One of the biggest rackets according to Farook is  the incessant purchase of Korean or Taiwan made spare parts for the prices quoted by Japanese companies.

"The difference is considerable and since there is no legal requirement to prove the spare part was actually purchased from a particular  company, substitution of body parts  by using inferior products  meant that it needed a further replacement soon," he claimed.

Nightmare

Admittedly, the transport service has improved in the cities and districts that are considered more urban. But go beyond to the areas with less developed infrastructure and signs of urbanity,  state transport is a killing experience.

Not forgetting how errant the driving is, it is no joke being  a commuter or a pedestrian judging by the number of fatal bus accidents in the past year  alone. In remote areas, it is an eternal wait for a bus to arrive.  And if this bus does not turn up, that would practically mean children failing to go to school, people getting late to work and oftentimes, having to reschedule one's journey all together. It is  certainly not fun.

Since 1968, this sector has not been able to provide a fair and justifiable service to the commuters, and the commuters' litany of woes is heart breaking. Despite ad hoc attempts, the sector has only had marginal improvements.

Do buses run the way they are supposed to, we asked depot inspectors. Their answer was a collective "No." Of course there were problems with regard to adhering to charts, as often there were breakdowns. Who runs the buses? is yet another question that remains unanswered. It is believed  certain 'chandiyas' controlled by a handful of politicians continue to ruin this sector.

It was shocking to learn that though officially there was more than the required number of buses available, not all plied regularly. It was explained that the principal cause for this is the lack of proper schedules, and then, the fact that outsiders governed the schedules.

It was thought in the late '70s that calling the private sector also to shoulder some of the responsibility in the transport sector would be the panacea for all ills, but the problem thereafter appeared to be even greater.

The omnibus operators moved into the scene in 1978. The private bus operators formed themselves into different bus co-operatives. Some of the handpicked 'chandiyas' of a particular area invariably controlled them. These elements obviously had political influence to decide on the whole operation and also to work out schedules  to suit their requirements.

 No control

Though the government held a fair  stake  during the privatisation, it failed to utilise its full powers under the constitution to keep the chandiyas under control.

In 1982 private bus departments were created for better results. Whatever the changes that were introduced with the intention of streamlining the sector, the government did not pay much attention to these chandiyas  who wielded more power in the entire private bus operation than the government.

Under the Indo-Lanka agreement the 13th Amendment was introduced and by 1991/2 the responsibility to run the buses was delegated to the provinces. Though the old system died a natural death, the chandiyas were absorbed into the provincial council transport authority, who then carried out similar  operations. They still could not be controlled. They drew up the schedules and the busses had to run according to their directives.

Each operator was forced to give the 'chandiyas' who subsequently were called "time keepers" their share. These so called time keepers are still found actively extorting money from bus operators and influencing the authorities concerned in changing the time schedule according to their whims and fancies.

The Private Bus Owners Association (PBOA) President, Gemunu Wijeratne says this whole system should be changed adding that there should be a system where political influence would be out of bounce.

Wijeratne says with six provincial councils controlled by the People's Alliance (PA), it is even more difficult to run these busses and meet the demands of the public.

He says until politics is driven out of this sector, the bus operators can never provide a satisfactory service.

"I suggest that the National Transport Commission be abolished all together and an independent transport committee appointed to run the whole operation," he told The Sunday Leader.

The Sunday Leader found out that only about 45% of bus halts are available in the routes for buses and of them, majority of the halts do not have proper facilities for both the public as well as the crew. For instance halts do not have toilet facilities for drivers or the conductors.

Snail pace

Since the number  of passengers are now spread over to more buses, as there are excess buses on some roads, bus operators tend to slow down their journey in order to pick passengers and fill their buses.

Dr. Amal S. Kumarage of the Transportation Engineering Division of Moratuwa University puts it this way. He says there are 25 buses running on a particular route when the requirement is only for 20, naturally resulting in a revenue drop. In order to cover the cost, the only method a driver adopts is to drag his journey, picking as many passengers as possible. This  obviously creates delays, Kumarage explained.

He also says a bus that earlier operated about five trips  a  day  may have to be reduced to either four or three with the extra buses. "There again a driver's revenue is hit hard. What he does is to burden the passengers by doing a slow  run," he said.

 Kumarage who has carried out a number of surveys on national transport further says that permits issued by the state are also flawed.

According to him permits are issued without any market survey under political influence. He says a permit must be issued only if there is a need for it.

In Sri Lanka generally permits are issued to the 'chits' that are sent to the authorities by politicians.

Issuing only

According to Dr. Kumarage a permit is a contract. He says surprisingly it is only in Sri Lanka that permits are never cancelled for any breach of conditions or regulations. "There is only one system and that is to keep issuing," said Kumarage.

Today almost every bus driver is imposed a penalty for  breach of road rules.  But it stops there. If his license is confiscated today, tomorrow  the driver pays the amount needed to redeem it, and is back on the job.

The Sunday Leader also found out that the operators are not accountable to anyone because most of the bus owners lease out their vehicles. This seems to be a problem for the law enforcement authority in instituting legal action against the real owner.

Also because of the competitive nature of the bus drivers and the operators, drivers are constantly hired and fired. For instance, an owner may sack a driver who runs over a person, but the owner's competitor will hire the same driver once the legal case is over.

The crux of the matter is, politics needs to be weeded out if the bus service is to be given a boost, and it is about time that some quick fixes are made to ensure that the poor public get some kind of dependable and decent service.

Minister Tilak Marapone who is overburdened with several portfolios to juggle said that it was extremely difficult to create a commuter-friendly transport system when the flow of funds was low.

"It has to be understood that with the limited allocations, it is a grueling task to address this issue. Nevertheless, I agree that the public bus service needs to be overhauled in a manner that serves the public."

Marapone said with the peace dividend, the coming years would ensure better budgetary allocations that could be used to effect necessary improvements in the public transport system, serving the common man.

Wheels of death 

It is very rarely that a government department lives up to the expectations of the Central Bank. But, the Sri Lanka Railways  (SLR) is not only meeting the targets, but outperforming them as well.

Surprise, surprise? Well read on.

“In the absence of new investments and reforms, notable improvement in the rail services cannot be expected even in 2003,” the bank said in a report titled ‘Recent Economic Developments – Highlights of 2002 and Prospects for 2003.’

There is no improvement, but there certainly is deterioration. From the last weekend of January, the SLR  discontinued track maintenance during the weekend. The reason – lack of funds to pay over time (OT). Trains are running at a speed of 30mph. The Galle express that usually reaches Colombo within three hours, last week took five hours.

According to Administrative Manager, SLR,  Vasantha Ekanayake fund allocations have been slashed by the Treasury in the last budget, resulting in funds running thin.

What has taken place is that the SLR was using parts of its capital allocations to meet recurrent expenditure like some OT payments. Now that the allocations have been cut, so is over time. And the solution is that engine drivers have been advised to stick to a speed limit of 30 mph.

Last week, SLR said that allocations have been made by the Treasury, but the speed was increased only by 5 mph to 35 mph.

Transport Minister Tialk Marapone last week appointed a committee to alliviate situation.

One of the first decisions by the nine ubsid committee was to allocate Rs. 400 million to the SLR. The council  that is headed by Additional General Manager Railways,  K. A. Premasiri has the power to ubsidiz the GMR if the necessity arises.

But maintenance is not the only problem that is plaguing the SLR. It does not have adequate locomotives and carriages to meet the minimum requirements  and is finding it increasingly difficult to maintain  standards.

The SLR has  129 locomotives in its use, but according to the Central Bank it needs 154 to barely meet the timetable demands.

The 520 carriages are hardly enough to meet the minimum requirement of 809.  The deadly formula of the state of the tracks coupled with the dearth in resources means that the SLR is  risking the lives of thousands of commuters with each trip.

And these commuters, mostly lower or middle income level government servants  sometimes are literally riding on wheels of death. A confidential report handed over to the General Manager,  SLR last year listed that four daily long distance outstation trains were running with a staggering 17 carriages that had only been inspected and serviced four years back.

Same old story

The servicing was subsequently improved after The Sunday Leader highlighted the pathetic state of affairs. But according to SLR sources after the initial enthusiasm now it is back to the same old story.

Recently, SLR experienced a shortage of wheels. Its in-house stock ran out and replacements could not be found.  Yet the trains were put on track and carried the unsuspecting commuters.

The new stock only arrived two weeks back but service managers at sub depots like Ratmalana are having problems aquiring the wheels as they do not have sufficient monetary allocations of their own.

SLR engineers take such incidents to highlight the very poor planning that goes on at the SLR. “When you can’t afford rice, you try to survive on something else. Here, you starve,” one engineer said.

His argument is that if funds are slashed, like what is happening across the board nowadays, plans should be in place that will allow the SLR to carry out a safe service, at least. “The SLR is at a stage where it is hand to mouth survival and no one seems to have ubsidiz this.”

Ekanayake countered by saying that the SLR is managing as best it could with the limited funds and accumulated burdens, like fuel costs.

The SLR owes the Ceylon Petrolium Coporation Rs. 857 million in outstanding fuel bills. The CPC issued an ultimatum that if this was not settled by end-January, fuel supplies would be suspended.

When credit lines and CPC dues to SLR are deducted, SLR has to pay another Rs. 350 million. “We will shortly pay Rs. 200 million,” Ekanayake said. That might alleviate the situation for the time being, but what of the future  that is bleaker than ever?

The SLR’s annual fuel bill is Rs. 1,100 million, meaning it will run into the red in the CPC books again this year.  And with fuel prices on the rise, the losses would be more.

The SLR’s survival strategy it seems is to cut down quality and provide quantity when possible. For example, engineers point out that in the urban sector tracks are relatively well maintained and that there is no need for the 30 mph limit. However beyond that, where still trains run on wooden sleepers, it is a different story. Engineers warn that the next big train accident is just waiting to happen in this sector.

In the red

With very little funds at its disposal, Ekanayake admitted that the SLR is not in a position to upgrade its services.

The SLR is draining public funds as services are ubsidized by the government.  Its operating loss was calculated by the Central Bank to breach the Rs. 2 billion mark last year. This, despite a 9% increase in revenue to Rs. 621 million in the first six months of 2003.

The heavy losses were attributed to low ticket fares , the rise in oil prices, along with high salaries and maintenance costs. The losses are exerting heavy pressure on government finance.

  The SLR did increase its freight charges last year but despite the increase in loads, the losses suffered on the passenger sector could not be recovered.

The only option that is available is to increase fares. An option that the government would not like to think of with the present state of the economy.  SLR General Manager, Priyal de Silva recently told The Sunday Leader that even if fares are increased by 50% still it would not suffice.

Train fares have remained unchanged for almost  nine years, since 1996. They are as much as 50% cheaper than the bus rates. For example, a train ticket to Waikkala from Colombo is just Rs 11.50. A normal bus ticket is Rs. 20, while a luxury ticket is Rs. 50.

With no capital inducement and no pay revisions, the SLR is running into the red all the time, especially when it comes to safety standards.

Tomorrow if you  intend in taking a train to work, think again. Would you risk it? Not a soul would have had a good look at the  track during the last 48 hrs. Wheels of death, man, wheels of death.

Train travel - a 'different' culture 

The real chaotic hours in the train stations are the evening ones. Hop into the Fort Railway Station around 5.30 p.m. and bodies would be pushing you all the way to the train from the steps at the entrance.

Several long distance office trains rendezvous at the station at this time. The one that ambles along to Puttalam and its cousins that grind their way to Galle and Matara.

It is a different culture on these trains, unlike in the short distance runs mostly used by urban dwellers.

In these long distance monsters with 16 to 20 carriages, there are 'clans.' Each compartment would have its own set aof occupantsnd each seat would have the very same bums resting in the same places as the day before and the day before and....

If an unsuspecting new comer rests his or her tired limbs in one of these pre-specified locations, the posterior would either be pushed out of the seat or the conversation would get so nasty that getting up and risking your life dangling by the railings is a luxury.

Space is luxury in these trains. Answering a call of nature would have to wait here. Even the stinking toilets  have their own guests who put the commode cover down and sit the ride through.

Handicapped, pregnant or injured, you might go unnoticed in these carriages where perfectly ordinary citizens in horn rimmed glasses turn into wolf packs guarding territory.

It is turf war on iron wheels at its worst.

Most of the long distance trains have an express run, the Puttalam does this up to Negombo.What it really means is that at times the trains would get crowded as commuters closer to Colombo prefer to take the short ride despite the over crowding.

For instance, the Galle express reaches Moratuwa, 20 km from Colombo in less than 15 minutes from Bambalapitiya. In the evening traffic jam, the bus would take  one and half-hours to reach the same destination.

There is entertainment also while on the go. There are groups of passengers that provide sing alongs and if the train is not that crowded, the usual street singer or band (with battery powered sound systems to boot) would get in and start an impromptu performance.

Then there are the never-ending card games, famous among middle aged men.

Then there is  fun of  other sorts, the stuff that takes place at narrow corners between the different sexes. Yes, bumpier the ride, better the gleanings.

There are some trains that are famous for 'the couples.' The early morning Puttalam train that arrives in Colombo at 8.15 a.m. being one such. When the train begins its ride, it is pitch dark and for the amorously inclined, it is game time in twos.

The Victorian morality Sri Lankans love to gloat over rests squarely on the platform.

Age is no barrier on the train. Sari draped middle aged ladies are pack animals on the carriage. Minutes after stepping down though, they convert themselves in to  innocent  'virgins.'  The change-over repeats in the evening.

Then there are the  conversations, on every thing from politics to the  previous night's tele-dramas, constantly disturbing the attention of the avid newspaper junkies who carry the weekend paper on Friday.

But the trains are the most cost-effective mode of travel to most government office workers who travel to Colombo from 40, 50 km out. They have a special relationship with the train. They even have annual parties in the carriages. They know the engine driver and are sure that even if the connecting bus gets 10 minutes late the friendly driver would keep the train waiting for them. Every year-end, the driver is  showered with gifts.

When the routine delay takes place, they despair, but hope that the driver despairs with them, and blames the government. They curse at the bus commuters who pack in like sardines when the buses go on strike and bemoan travel by bus.

Commuter woes 

It is peak office time, 5 p.m., and the main bus stand at Pettah is a sea of heads and a hive of activity. Some people paid an extra Rs. 3 to get to this main bus halt so that they could take a bus and be seated all the way to their destination.

According to commuters, there are many shortcomings in our bus services. The main among them are that CTB buses are scarce and that the private buses take "their own cool time" to reach the destination.

"About 20,000 people flock here," said Senior Supervisor  D. G. Kulasena, from his little cagelike compartment Wednesday evening. "But we have enough buses that come here - there are the route numbers 120, 122,125 and the Moratuwa, Panadura and Ratmalana buses. We expect 20 to 30 buses to come here . But once in away the number is less. I cannot say that there are no buses because at the office time some bus turns up here," he pointed out speaking on behalf of the CTB. "Anyway all I can say is that everybody who comes here somehow goes home," was the way he summed up the situation.

But how do commuters go home. In the lap of luxury or in a never-ending nightmare of discomfort? The state of our transport is so bad that people seemed to have accepted it as a way of life. They fail to notice that they are packed into buses and left standing in them, till the drivers decide to make a move, which is almost, never.

The men in the compartments that deal with private buses are better attired. They speak good English and paint an overall good image of privatisation. But more importantly, they say that private buses are a dime a dozen. "There is a bus every 15 minutes and we say that we give commuters the best service," said Udaya Kumara Kodagoda, the timekeeper.

The stand OIC said that they experience no shortage of buses. Infact we have more buses than the CTB. We start at 4.30 p.m. and go on till 9.30 p.m. If there is a shortage we get extra buses.  On a Friday we experience a great rush here. But somehow we manage," said Daya Ranasinghe, stand OIC.

Painfully slow

As if confirming what the authorities are saying, Mohammed Mudaseer said "I come from Panchikawatte to Pettah and there are enough buses. There are buses from Kadawatha and Jaela. There are buses every five minutes."

Mohamed Roshan From Kahatawita said that he gets a bus every half an hour and sometimes even that does not turn up. He said that the last bus is at 9.30 p. m.

Bus no 63-2258 that took off from Pettah to its destination Moratuwa however took two hours to reach its destination. Stopping at every halt, waiting for competitors to pass by; it lazily dragged its way. The people in seats were yawning and those hanging on its iron pole above were annoyed. But nobody said a word.

Photographer Berty Mendis stood clutching onto his camera bag. He was writhing in discomfort, standing in a middle line, as the two lines of people on his left and right were making it impossible for him to breathe. It was going to be a long ride. The conductor kept shouting "Naginna, Naginna," to people who seemed not to have the faintest hope of taking the bus. People were being coaxed into the bus with loving tenderness. When the time came to get off however, they were almost pushed out. Those who took time to get off the bus experienced the conductor's wrath: "Nidagenada hitiye?" were some of the personal questions he asked.

The conductor also found great relationships among the commuters. Some were Akkas, others were Ammes, and Uncles. Thankfully there were no aunties.

Shermi, an office girl in the bus said "True there are buses. But they are all so crowded and they take such a long time to get to their destination that it is so annoying. We have to sit here and wait till the driver decides to move the bus. It moves for five minutes and then it stops at one halt and waits for a long time. If a CTB bus passes or another private bus going on the same route passes by, then we have to wait for a long time before this bus decides to make a move," she said in desperation.

True to her word, the bus did not move. It was a painful experience. "Naginna, naginna, Kollupitiya, Bambalapitiya Wellawatte, Dehiwala........." The conductor kept on saying the same thing like an old warped record.

Battle for a seat

Somewhere in Bambalapitiya,  I won a battle with two men for a seat and got it. But the joy was shortlived as a youth wearing a lavendar T-shirt with the word 'Gap' decided to fill me in on what I did not know about travelling by bus during office time. He began to rub his hips and accessories all over my shoulder. First it looked as if  I was making a mistake for he was looking far out of the window, as if admiring the scenery. 'Maybe it is my dirty mind,' I told myself. Besides the bus was so crowded and nobody seemed to be in the mood for anything except to get home. But as the ride picked up, so did the man. It was more pronounced and unbearable. "It happens to office girls most of the time. Another annoying thing is the way people smoke cigarettes inside buses and puffs the smoke in our faces," said Enoka.

A majority of the commuters in Pettah said that there are buses, just the way the authorities say, but that they are all so crowded and so painfully slow.

It was evident that commuters travel without even the basic comforts. Those who are seated experience the pain of having the weight of those who are standing being thrust upon them. But it is those who have to stand all the way who bear the greatest burden. They have to shift from one leg to the other for not only is the ride long because of traffic but for the simple reason that private buses really do not want to go.

Commuters who are worst affected are those who have to board the bus mid way. The halts in Kollupitiya, Bambalapitiya, Wellawatte, Dehiwala, have a hard time boarding buses that come from Pettah. "They are so crowded and even if we get in  we have to hang on to some space and hold our  breath and bear it all till we go home," said Enoka.

In Colombo not only is the Galle Road in a state of chaos, but  Town Hall, Union Place, Thimbirigasyaya, Havelock Road, areas where route numbers 122,123, 125,138  ply. "There are enough buses on route 138, but they take such a long time to go," moaned Dileepa who has to take the 138 everyday. "I am so sick of going to work because I have to spend so much time in the bus. I have to board the bus at least one and a half hours early and even then I go to office just on time and sometimes late," she said.

Commuters welcomed the CTB buses, but the sad fact was that though they boast of having so many buses  compared to the privates buses, CTB buses were a gone issue. Infact, commuters said that if ever they got into a CTB bus, it was their surprise of the day.

Don't blame us - Engineers 

The Institution of Engineers, Sri Lanka (IESL) is greatly perturbed by the lack of sufficient funds for both capital and recurrent expenditure in the Sri Lanka Railway by the government. Apparently, a totally inadequate allocation has been made making it impossible for standards to be maintained.

The railway is an essential service. Thousands of commuters rely on it to get to work not only in the metropolis but also in other urban centres throughout the island. As a result of the lack of funds to maintain the railway, services will have to be curtailed and some terminated. Already, because of serious safety considerations, trains are running below optimum speed. This causes delays in commuters getting to work and the end result is lower than average productivity. This certainly puts a strain of an already overburdened economy.

The IESL is highly conscious of the fact that by the inadequate allocation of funds, engineers employed in Sri Lanka Railways are at the moment carrying out their work far below expected engineering standards thus even compromising on safety.

This is a serious matter that merits immediate consideration and action. The safety of the travelling public cannot be compromised any longer. A major railway accident or accidents are just waiting to happen purely because of the inadequacy of funding to maintain  even minimum safety levels. This means and implies that members of the IESL working in the railway cannot be held responsible if a mishap occurs. This is a warning for the authorities concerned to take notice of immediately.

On the main line between Colombo and Badulla, all train services are being terminated at Bandarawela because the tracks have shifted out of their proper alignment between Badulla and Hali Ella. This means that any train going over these tracks is in immediate danger of going over a precipice with tragic results.

It also means that the travelling public who commute to and from Badulla have now been compelled to utilise more expensive road transport to reach their destinations.

Many people commute to work from Bandarawela to Badulla and from Badulla to Haputale and so on and they have found using the railway convenient because they live in the vicinity of the stations and far from the main roads.

The tracks between Panadura and Fort and between Avissawella and Maradana are in a poor state of maintenance and trains speeds have been cut as a result,  causing grave inconvenience to the travelling public. All of this is due to the lack of funds.

The Institution of Engineers strongly urges the government to take immediate action to correct this situation before it results in death, injury and damage to person and property. The IESL is issuing this statement in the public interest and because the safety of the public is a prime concern of all professional engineers.

The Institute of Engineers, Sri Lanka

J. B. Muller

Coordinator

Mass Communications & Information

February 14, 2003


The Gulf crisis and oil prices 

Chairman, Ceylon Petroleum Corporation, Daham Wimalasena said oil prices would definitely go up as a result of the emerging crisis in the Gulf. He said it is impossible to say by how much prices will rise locally but it will depend solely on supply and demand. The recent increase in Brent crude oil prices Wimalasena said is not an indication of local crude oil prices. What is being traded in Sri Lanka he said is crude oil known as Arab Light. Brent crude oil is traded in the Atlantic and its market price has no effect on crude oil traded in Sri Lanka.

Short-term dangers

Until now, debate over the economic impact of a U.S. led attack on Iraq has focused mostly on short-term dangers. Pundits have worried that just as during the Gulf War, a new Iraq war would disrupt oil exports from the Persian Gulf and cause a sharp spike in petroleum prices. Iraq has 113 billion barrels of proven reserves, second worldwide only to Saudi Arabia, which has 262 billion barrels. But because of its two decades of war, Iraq's oil potential remains relatively unexplored. The U.S. Energy Department estimates that Iraq has as much as 220 billion barrels in undiscovered reserves, bringing the Iraqi total to the equivalent of 98 years of current U.S. annual oil imports.

The oil card is clearly a factor in the current tug-of-war between Baghdad, Washington and key members of the U.N. Security Council that oppose the Bush administration's push for a military move on Iraq. In recent years, seeking to curry favour, Saddam Hussein has given huge contracts to oil firms from France, Russia and China, which all have veto power in the Security Council. The last time America went to war with Iraq, a sluggish economy and terrorism fears kept Americans close to home. Thousands in the travel industry lost their jobs, and major carriers struggled to cope with record losses.

Sri Lanka's fears in this context is with its migrant workers in the middle east. The increases in crude oil prices will doubtless automatically affect transport. Having said that, Wimalasena however pointed out that the effects of a potential war with Iraq are unknown and cannot be incorporated into any forecast. Oil market prospects for this year according to global statistics will remain highly volatile driven both by the lack of flexibility in the supply chain and by political uncertainty.

Struggling industry

 A lack of adequate commercial oil stocks in the US and no nearby replacement for lost short-haul crudes from Venezuela has left the oil supply chain stretched almost to breaking point. OPEC's pursuit of its oil price target in 2002 resulted in low commercial inventories, leaving the industry struggling to cope with the Venezuelan supply disruption. With the nearest alternative source of substantial supplies 40 days away in the Middle East, oil should have been released from the SPR in December to tide refiners over until this replacement oil arrived, calming market fears and prices. OPEC's January meeting did nothing to alleviate the situation, because, with output at 21.7 mbpd, the nine members other than Iraq and Venezuela were already producing more than the 21.68 mbpd of combined quotas they agreed for themselves. Shipping data indicate that OPEC output continued to rise in January, suggesting that other members are producing at least some of Venezuela's share. However, this increased supply will only be of benefit when it begins to arrive off the US Gulf coast in mid-to late-February, this year. A shortage of prompt oil and fears of a war in Iraq will keep prices high, but when the Venezuelan strike ends (as it must do sometime), the world could be faced with too much oil.

Fears of a US-led attack on Iraq remain, although there is uncertainty over the timing and the need, or otherwise, for a prior UN resolution. OPEC alone does not have sufficient, readily available spare capacity to replace both Venezuela's and Iraq's oil exports, much less to cope with any supply disruptions from other Gulf producers that might result from a prolonged conflict in Iraq. Were an attack to be launched on Iraq, consuming-country governments would have to utilise quickly their strategic oil stocks to ensure adequate supplies.

This is possibly one of the reasons why buyers are prepared to pay a large premium for oil delivered into their tanks now and not later. According to a recent financial analysis of the situation by Bloomberg press, crude oil was little changed after rising above $37 a barrel on the 20th of this month for the first time in 29 months as the U.S. and U.K. pushed for a United Nations Security Council resolution authorising the use of force to disarm Iraq. Crude oil for March delivery traded at $37.10 a barrel in after-hours electronic trading on the New York Mercantile Exchange. Last week it rose 20 cents, or 0.5 %, to $37.16 a barrel, the highest closing price since September 20, 2000.

A rise above $37.80 would put prices at their highest since October 1990, when the U.S. was sending troops and materiel to the Persian Gulf following Iraq's invasion of Kuwait that August. The US and UK are jointly drafting a new resolution as an ultimatum to Iraq to comply with UN demands by a fixed date, the U.K.'s Guardian reported, citing unidentified UN officials. Hussein "is a threat to America and we're going to deal with it," U.S. President George W. Bush said last week.  "We're working with our friends and allies to see how best to get a resolution. It's not necessary, as far as I'm concerned."

Chain reaction

The U.K. government advised British citizens in Iraq to leave the country "immediately," citing tension in the region and the risk of terrorist attacks, according to the Foreign Office web site. Britons were also advised not to undertake any non-essential travel to Kuwait. While the war preparations proceed, crude-oil inventories in the U.S., the largest consumer of the raw material, have declined. Supplies in the week ended February 7, were down 14% from a year earlier at their lowest since 1975, according to the Energy Department.

The fall out effect on Sri Lanka is already evident. Last week the government stepped in to stop a fuel hike in kerosene and diesel, saying the increase would have a severe chain reaction for millions of people amidst escalating cost of living.

The suspension of the price hike however was only for diesel and kerosene. Other increases have already come into effect. The halt on increasing the price of diesel however at least temporarily has prevented transport costs from also rising. That this is  inevitable in the event of a war in Iraq, looks ever more imminent.

 Insight team:

Amantha Perera, Dilrukshi Hadunnetti, Frederica Jansz, Ranee Mohamed and Wilson Gnanadass

 

 

 

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