Refining crude oil into crude debt at the
A.H.M. Fowzie and Asantha de Mel
CPC commits to $1.7 billion Iranian refinery
Borrows US$ 1 bn from Iran
at commercial interest
Govt. to raise $500mn through bank bonds
Central Bank investigation buried
Output won't keep up with demand
By Ranjith Jayasundera and Ruan Pethiyagoda
The public's immediate concern with the
Ceylon Petroleum Corporation (CPC) is the
exorbitant cost of petrol, diesel and
kerosene, that could change quickly with
descending oil prices - and the burden of
importing more petrol and diesel from abroad
if Sri Lanka's refining capacity does not
catch up with the local growth in demand for
oil over the coming years.
It is for this reason that several
successive governments have looked at a
variety of options for increasing Sri
Lanka's refining capacity, from expanding
the existing CPC refinery, to building new
refineries. Unsurprisingly, the incumbent
government has found a way to spend more
money than the annual defence budget, stir
the pot with the Western world, drive the
country further into debt and lock us into
Iranian oil, without solving the refinery
On August 19, Petroleum Resources
Development Minister A.H.M. Fowzie submitted
to cabinet, a proposal for 'modernising' the
CPC's Sapugaskanda oil refinery. The cabinet
paper sought permission to appoint two
committees 'for the selection of a
contractor' to carry out the expansion
Yet the paper in detail describes how it has
been 'decided' to award the project to the
Iranian government, to be designed and
implemented by that country and paid for in
full by the Sri Lankan government. '70% of
the project cost shall be arranged through
financing by Iranian Banks' the cabinet
paper says. The remainder has to be raised
by the government.
Central Bank investigation
What seems to have caught the attention of
high-ranking government officials and has,
this newspaper learns, merited a Central
Bank investigation, is a comparison of the
project's proposed cost the increase in
output it would provide. The US$ 1.7 billion
project, according to the cabinet paper,
would only increase the CPC refinery's
capacity by 50,000 barrels per day.
In contrast, an $800 million project touted
as recently as 2006 - before Iran entered
the Chinthana picture - was planned to build
a brand new refinery able to process 100,000
barrels of oil per day. For more than twice
this cost, the Iranian proposal will provide
only half the output. Minister Fowzie, on
Friday, released a statement claiming that
"The Government of Iran has consented to
grant us USD 1500 mn for the establishment
of a new oil refinery station."
This statement alone is quite a deviation
from the truth. The note presented by the
Minister to cabinet states clearly that only
70% of the project cost, or approximately
US$ 1.19 billion, will be provided by Iran,
and even that via a loan, which the
government would eventually have to repay.
The remaining cost of around US$ 510
million, he proposed to cabinet, would have
to be raised by the CPC "through bank bonds
within a period of 2-3 months." Which bank
would grant such a phenomenal loan to an
institution with an existing, staggering
debt of US$ 750 million, Minister Fowzie
does not mention, nor is there any talk
about how such a loan could be repaid.
A CPC Trade Union official who was familiar
with the cabinet paper said that the
Petroleum Corporation's employees are
puzzled and frightened by the proposed deal.
"We were worried about the old $800 million
proposal also, but this is much worse. It
doesn't make sense to pay so much money to
Iran to just increase capacity by 50,000
barrels. By the time the project is
finished, the demand would have already gone
up and we'll need to expand again before we
can even finish paying for this."
On the earlier proposal for the construction
of an $800 million refinery to process
100,000 barrels of oil per day, he said that
the unions initially had a flurry of
concerns. "We thought that it would make our
refinery to be neglected and unable to keep
up. If someone else was paying for it, why
would they help the CPC, is what we
Proponents and advocates of that project,
led by a consortium named Global Energy, had
met with trade union representative in early
2006 to thrash out their differences. "They
explained that the government couldn't
afford $800 million. So this company would
have built the refinery, operated it without
competing with our one (the CPC) , and then
handed it over to the government after a set
period of time. They would make their money,
of course, but the government would have
gotten all the benefits, and we would have
been competitive with the Indians, which we
are not now."
Studies at the time (in 2006) revealed that
an expansion of 50,000 barrels per day would
fall short of the estimated 2010 petroleum
products demand by one million metric tonnes
- a deficiency that would have increased to
3 million metric tonnes by 2015 - thus the
decision to go with a 100,000 barrels per
"They were going to export their extra
produce until demand caught up, and although
that wouldn't have helped us at the CPC, it
would avoid competition, and make the rupee
stronger as well," a former Sapugaskanda
refinery engineer said. "But now with Iran,
by the time this project is done, still
there won't be enough capacity and the CPC
debt will get even bigger."
He also raised concerns about whether Iran
has enough technical expertise to handle
such a project, due to long term sanctions
they have been under from the
"No international engineering company would
help them without the US blacklisting them
immediately," he added.
By design, the new equipment would be
tailor-made to processing only Iranian crude
oil, "which is no longer the best or the
cheapest." It is only prudent, given the
see-sawing nature of international
relations, that if the government is putting
down $1.7 billion to build an oil refinery,
it should be ready to process cheap crude
oil from anywhere, and not tie us to Iran.
A senior Petroleum Ministry officer said
that officials involved are tight lipped on
the project, and that the Minister himself
has been disturbed by the Central Bank
investigation. "The cabinet paper itself
raises enough concerns. While it wants to
appoint committees to choose a contractor,
it not only says who the contractor is, but
how they should be paid in Euros and not in
Minister Fowzie, in his Friday statement,
raised the issue of the phenomenal price
difference between the older US$ 800 million
proposal and the current Iranian one. He
said that under the old proposal, which he
said was one touted by the UNP government,
old machinery was to be imported and landed
on the government once the contractor had
made the best of it. "They will engage in
the process of refining oil during the 25
year period and will leave us the machines
afterwards," he said.
Documents available to us, however, prove
otherwise, which raises the question of why
the Minister is to justify the staggering
price of his Iranian proposal. The old $800
million proposal was a BoI project, and
under standard BoI terms, used machinery
cannot be imported into Sri Lanka. The
comparisons are today irrelevant however, as
the Global Energy offer, and all of its
kind, are currently off the table.
The Minister has further put his foot
squarely in his mouth by attributing the
older proposal to the UNP. In reality, the
cabinet paper for the Global Energy project
was put forward by former Finance Minister
Sarath Amunugama during the term of
President Chandrika Kumaratunga.
A treasury official confirmed that final
arrangements to sign the loan agreement for
70% of the project cost with an Iranian bank
are underway, even though neither the CPC
nor the Treasury has any concrete plan to
raise the remaining 30% or US$ 510 million.
He further said that a few but the Treasury
Secretary Dr. P.B. Jayasundera are privy to
the details of the agreement.
The terms of the Iranian loan of over US$ 1
billion are not clear, and the fact that it
was raised on commercial terms is what
raised red flags at the Central Bank, whose
critical report on the deal has since been
buried. Funding for government development
projects has in the past been secured at
nominal rates, before the current
administration began the practice of doling
out bond issues and loans at commercial
In this case, especially given the stunning
cost of the project, there is no rationale
for directly awarding such a massive
contract to Iran without calling for an open
tender or seeking other more viable offers.
The 1.7 billion dollar question now is how
the government plans to repay the Iranian
loan, when the output from this refinery
will be higher priced than even petrol or
diesel imported from Singapore. CPC Chairman
Asantha de Mel told The Sunday Leader that
the loan was to be given at LIBOR + 0.5%,
which works out now to around 3.7%. He also
said that the loan has a grace period of
five years, and that the refinery could be
up and running in two years.
"We will have three years to run the
refinery and generate profits before we
start servicing the loan." Asantha de Mel
also said that the price of the refinery
would be capped at US$1.57 billion and that
"we can't get a loan like this anywhere in
the world." He said that there is a world
benchmark price for such projects of US$
30,000 per barrel per day, and that a cost
of US$ 1.5 billion would thus be the average
price for such a project.
"To those who are criticising this move, my
response is that is it something we should
have done years ago. The capacity will be
more than we need and we can stop importing
refined products and the price is the best
we can get. If anyone can provide a similar
service to us for $800 million now, tell
them to call me and I guarantee we can sign
the deal with them tomorrow over the
counter," the CPC Chairman said.
Quite a task
For De Mel's formula to work out, the CPC
would have to be in a position to start
repaying the loan five years after it is
taken. Even if the whole amount of US$ 1.57
billion was at a nominal 3.7% interest,
paying it back over 10 years will be quite a
The capital cost of the loan would work out
to $157 million per year, and the annual
interest initially would be $58 million. So
the CPC, with a current debt of US$ 750
million, would have to be profiting by at
least $215 million per year, or $30.7
million per month to begin meeting the debt
Whether this is feasible, is known only to
an inner circle in the CPC, Petroleum
Resources Development Ministry and the
In the public interest, we can only hope
that a future government will not be left
with an even more spiralling public debt
burden that this administration has already
brought to bear.
Mervyn Silva's sidekick
on the rampage
Police visiting the night club located
on Flower Road, Colombo 7
(inset) Shirani and
Gunathilake alias Kudu Nuwan
By Malaika Fernando
One of Labour Minister Mervyn Silva's
supporters who was last year in the
limelight for his alleged involvement in the
attack on the Sri Lanka Rupavahini
Corporation (SLRC) News Director has once
again taken centre stage, this time over an
alleged sexual assault.
Nuwan Udaya Gunathilake alias Kudu Nuwan,
was a key figure in the SLRC drama last
December where Silva and Nuwan who acted as
his personal security officer stormed the
SLRC office and allegedly abused and
assaulted News Director T.M.G. Chandrasekara
for failing to broadcast a defamatory speech
delivered by Silva the day before at a
function held in Matara.
Interestingly, at the time of his appearance
at the SLRC, Nuwan was a suspect out on bail
in a double murder case.
Rupavahini news staff alleged that it was
Nuwan, on Silva's instructions that
assaulted the news director. The SLRC news
staff demanded an apology from Silva and
Nuwan for assaulting the news director.
Refusing to make any apology the crisis
worsened with Silva and Nuwan taking refuge
in the chairman's office as angry Rupavahini
staff demanded an unconditional apology for
the assault on their news director.
The staff then decided to give a dose of the
same medicine to Silva and Nuwan who were
holed up in the chairman's office. The staff
surrounded the office and threatened to
force their way in if Silva and his security
officer, Nuwan, failed to come out.
Nuwan was finally brought out of the
chairman's office in handcuffs by police who
had arrived on the scene on a demand made by
the staff. However both Silva and Kudu Nuwan
were beaten up by the enraged staff despite
the police protection and a police cap was
placed on Kudu Nuwan's head by policemen to
prevent head injuries.
Shortly after the Cinnamon Gardens Police
took Nuwan into custody over the alleged
assault on the SLRC news director. It was
then that Kudu Nuwan, who at the time was in
plain clothes and tinted hair, was found to
be a suspect in a double murder case who had
recently been released on bail.
Nuwan was detained and treated at the
National Hospital. He was later released on
bail by the Colombo magistrate.
Just a few months later, Nuwan resurfaced in
the police complaints book. That was last
week. This time for an alleged sexual
Sexual assault charge
A close associate of Mervyn Silva, Nuwan, is
now a man wanted by the police in connection
with an alleged sexual assault charge
levelled against him by a female employee
attached to a nightclub on Flower Road,
Kudu Nuwan had visited the nightclub on
Wednesday (3) night with a few others who
also were allegedly involved with the
It was in the early hours of Thursday (4)
that Nuwan had allegedly raped the female
employee at the nightclub.
A frequent visitor to the nightclub, Nuwan
after raping the female employee had walked
out without batting an eye lid, while
Shirani (name changed), the victim is now
left helpless and jobless.
Soon after being allegedly raped by Nuwan,
Shirani had called the police emergency line
119 and reported the incident. The
Kollupitiya Police after conducting initial
investigations had taken Shirani to the
police station for further inquiries.
According to Shirani, her employers have
decided to distance themselves from the
whole incident, as they fear an attack on
the club by Nuwan and his underworld
Fear of an attack
"They are scared that they might not be able
to continue with the club if they made Nuwan
unhappy as he is being backed by Mervyn
Silva," Shirani said.
The Sunday Leader also learns that Silva had
last week made contact with the officers at
the Kollupitiya Police Station and had
requested them not to be 'too keen' on
conducting the investigations and arresting
Police Spokesperson SSP Ranjith Gunasekera
said the police was 'still trying' to locate
Nuwan Udaya Gunathilake alias Kudu Nuwan
following the sexual assault charge made
against him at the Kollupitiya Police.
Gunasekera told The Sunday Leader that the
police had deployed a team to locate Nuwan
and up until Friday evening, the police had
been 'unsuccessful' in their attempt.
He said that Nuwan would be arrested as soon
as he is located.
Interestingly, the police who take swift
action to arrest any other person charged
with even a minor offence has been unable to
locate an alleged murder suspect who has
been arrested for assault and now charged
The police just last month ignored a court
directive to arrest Silva over the alleged
assault and intimidation of a camera crew
attached to Sirasa TV. Even days after the
directive was issued, the police only stated
that they would "act upon" the court
directive, but failed to arrest Silva.
Silva finally surrendered to court through
his lawyers and obtained bail.
The police who dragged their feet on
carrying out the court directive and
arresting Silva, have so far shown the same
enthusiasm in attempting to arrest Silva's
While murderers, gangsters and rapists roam
free in the country thanks to a police that
turns a blind eye, innocent victims like
Shirani are left with no one to turn to and
their pleas for justice are likely to fall
on deaf ears.
"I was raped by Kudu Nuwan"
27-year-old Shirani (name changed) had
been employed at the Flower Road
nightclub for the past five months.
Before joining the nightclub, she had
worked in a garment factory for five
A divorcee, Shirani is the mother of a
10-year-old daughter. The daughter lived
with her mother back in the village in
the Ratnapura District and Shirani sent
her monthly earnings to them.
Unable to bear what had happened to her
and the fact that her employers due to
fear of being harassed have not sided
with her at this crucial moment, Shirani
says she has no option but to return to
her village, at least for a while.
"I will go back to the village for a
while. But I will have to return to
Colombo as I have to find employment to
find money for my mother and child," she
On the night of September 3, Shirani was
allocated two rooms at the nightclub
where she served the guests. While she
worked, she had seen Nuwan enter the
club with about eight others.
A tearful Shirani speaking to The Sunday
Leader soon after lodging the complaint
and being subject to a medical
examination by the Judicial Medical
Officer (JMO) to prove her allegation
said she saw Minister Mervyn Silva's
supporters, Kudu Nuwan and Sudu Aiya
enter the club, as they were frequent
Nuwan and his friends visit the club at
least thrice a month.
"I finished all my work around 2.30 a.m.
and I went up to sleep. Around 2.45 a.m.
Nuwan and his friends went down, but a
few minutes later, he came up again and
spoke to me," she said.
Shirani had refused to speak to him
although he had seen him at the club and
spoken to him on one previous occasion.
"I have spoken to him once before, but
after I found out his involvement with
Mervyn Silva, I kept away," she said.
Nuwan had then pulled Shirani into the
"eight room" in front of the dressing
room. One of Shirani's colleagues, Meena
(name changed) who saw Shirani being
pushed into the room had asked Nuwan not
to harass her. Nuwan had then scolded
Meena in filth and chased her away.
"As soon as she left, I tried to walk
away as well, but Nuwan held me with
both his hands and pushed me to the
room. He then closed and blocked the
door with the sofa in the room," Shirani
Nuwan had then removed his trousers
halfway and ordered Shirani to perform
oral sex. When she had refused to do so,
he had forcibly rubbed himself on her
"I could not bear it and pushed him
away. He turned and kicked my stomach.
Then he held my neck and then my face
and while scolding me in filth, tore my
blouse," she said.
By this time Shirani had fallen on the
"He then pushed my legs apart with his
legs and while holding down my face with
one hand, he removed my underwear with
the other. Afterwards he removed his
trousers completely and raped me," she
Shirani says she was helpless and could
not shout for help as her face was held
down by Nuwan.
"After raping me, he wore his trousers
and walked out. I didn't know what to
do. I told two of my female colleagues
about the incident and they asked me to
keep quiet as it would ultimately be an
embarrassment to me, but I couldn't bear
it and called 119. I told the police
what happened to me," Shirani said.
The Kollupitiya Police had responded
within 10 minutes.
Manager wanted a cover-up
"When the police came to the nightclub,
the manager came and asked me to pretend
I was asleep and that he would say
something and send the police away. I
objected and walked towards the police
by force. I answered the questions they
posed and they then took me to the
police station," she said.
Shirani says that she still did not
understand why Nuwan raped her.
"When they (Nuwan) and his friends come
to the club, they have a separate set of
girls serving them. He (Nuwan) has a
girl who always serves him. But that day
she was asleep and when the police
questioned her she said she knew
nothing," Shirani said.
Shirani says that although she had been
employed in Colombo for the past few
years, she had never suffered such a
horrible fate before, adding that even
Nuwan had never before approached her in
"This is the first time something like
this has happened to me," a devastated
Nuwan out on bail over double murder
Nuwan Udaya Gunathilake alias Kudu Nuwan,
who is currently accused of sexually
molesting a girl, is also an accused in
a double murder case being tried in the
Colombo High Court.
The Wellampitiya Police had earlier said
Nuwan was a resident of Silva Mawatha in
Meethotumulla and was remanded as a
suspect in a double murder case several
months ago and released on bail a few
It has been reported that in this case
he and 10 others have been indicted on
seven counts, including the murder of K.
P. Somalatha and her son Sumith Kumara
on October 6, 2001 at Wadugodawatte,
It is alleged that the accused had come
with some others and hacked the two to
death following a dispute. Nuwan is also
alleged to have attempted to murder H.
A. Nilantha Kumara by hacking him with a
sword on the same occasion.
Nuwan is alleged to be involved in
underworld activities and robberies, and
had reportedly once shot at the police
during a confrontation.
That of course is the company the
Government's Labour Minister keeps.