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Indian Oil and CPC at loggerheads

By Frederica Jansz

A strategic partnership between Sri Lanka's state owned Ceylon Petroleum Corporation (CPC) and the Indian owned Indian Oil Company (IOC) is already fuelling flames of anger as the two main players are accusing each other of unfair play in Sri Lanka's petroleum sector.

Indian Oil Company in September last year signed a Memorandum of Understanding (MoU) with the CPC after being invited by Prime Minister Ranil Wickremesinghe to manage the oil tank farm at Trincomalee. 

In addition to managing some 15 oil tanks at the tank farm situated at China Bay, the Indian Oil Company was also given 100 of the best filling stations owned by the CPC to begin the distribution of petroleum and petroleum products in Sri Lanka.

The 100 filling stations were handed over to IOC, which was later incorporated as a company in Sri Lanka and called Lanka Indian Oil Company (LIOC) on the understanding that LIOC would pay a commercial price for the 100 filling stations after a full value assessment was completed.

The Sunday Leader reliably learns that an assessment conducted and completed by Ernst & Young has placed the value of the 100 filling stations at US $ 100 million.  However, LIOC we are told has offered less than half this price to the government.

CPC meantime has charged that the Indian Oil Company is resorting to various malpractices. In a strongly worded letter from Chairman, CPC, Daham Wimalasena to Treasury Secretary Charitha Ratwatte, Wimalasena has accused the Indians of playing dirty and resorting to unethical business practices.

He asserts that the Indians are lobbying private owner dealers of filling stations consisting of another 400 filling stations around the country, offering lucrative incentives which the CPC is unable to match due to the fact that the state corporation is not allowed to maintain any such margins.  He states the Indians are also abusing the MoU with the CPC by violating business ethics in a bid to completely marginalise the CPC.

Wimalasena also maintains that LIOC owes the CPC some Rs. 200 million but continues to make nebulous excuses, refusing to make the due payments to the CPC. 

Apart from this aspect, Sri Lanka Customs in July this year has also begun a full scale investigation into LIOC on the suspicion that the Indian company has fraudulently identified kerosene oil as jet aviation fuel in an attempt to avoid paying the excise duty normally charged for kerosene oil when imported.

According to Director General, Customs, S. A. C. S. W. Jayatilake, the loss in revenue to the Sri Lankan government as a result of this deception is Rs. 37.8 million.

Another leading private business entity, Caltex Lubricants Lanka Limited has also in July this year accused the Indian company of violating business ethics by using similar brand names used by Caltex to sell diesel engine oil. In a hard hitting letter to the Chairman, Indian Oil Company, M. S. Ramachandran, Managing Director, Caltex, Kishu Gomes has chided the Indians asserting Sri Lanka expected a much higher standard of ethical business to be conducted by the Indian oil firm.

Indian Oil Company is a major government owned entity in India. It is also one of Fortune 500 companies. 

The purpose of inviting IOC to Sri Lanka was to create competitive conditions in the petroleum sector and promote a strategic partnership with an oil company from the region in order to prevent possible unfair practices by multi-national oil companies.

The entire partnership is now falling apart as both sides are trading charges against each other.  The Indians are accusing the CPC of placing too many restrictions on their business, while CPC is charging that the Indians are playing dirty and resorting to practices that are destroying a level playing field in the petroleum sector.

The government is in the process of restructuring the CPC and has already invited bids to accommodate a third player in order to establish a tripartite partnership in the petroleum sector.

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