Issues

CPC continues to lose money

By Hawk Eye 

The local petroleum industry breathed a sigh of relief — almost audible internationally — when Major General (Retired) Asoka Thoradeniya was appointed as the Chairman and Managing Director of Ceylon Petroleum Corporation in the aftermath of the “Hedging” fiasco.

It is widely believed that Major General Thoradeniya was a personal choice of President Rajapakse and enjoys unrestricted direct access to the President. With this entrée established, the dynamics of managing a strategic — politically and economically — corporation of the importance of the CPC is certainly much easier.

International banks, who were at the forefront of establishing links with the CPC and then selling them the now infamous hedging instruments, were very keen to negotiate with Major General Thoradeniya and Petroleum Minister A.H.M. Fowzie, as both are known to favour a negotiated settlement.

The right thing

The banks are unlikely to settle for anything less than 75 per cent of what is owed to them, but Fowzie and his Chairman have done the right thing and have started negotiations — a boost in the long run to our national integrity in the eyes of an outsider and foreign lenders alike. Though the banks have now sought arbitration, it is widely believed that a settlement will be the order of the day,

However, as in all cases where the appointment of Chairman is a political one, the new appointee will seek to rely on the professional advice and expertise of the existing corporation staff — interspersed with guidance from ministry secretaries.

Certainly Asoka Thoradeniya is known to be a fair man who plays by the rules — it is therefore all the more galling that such a personality is being hindered in his efforts to bring back some stability to the CPC. That the CPC is a veritable can of worms is a well known fact.

Colombo society buzzes with the goings-on and deals that have been “cut” over the years at the CPC culminating in the hedging fiasco.

The CPC has, as one of its wholly owned divisions, a company called Ceypetco Bunkering Services. It has a bunkering license — a prerequisite to supplying ships with fuel. This company like the other seven bunkering licence holders makes use of the oil bank storage facility which is owned by the Sri Lanka Ports Authority through a wholly-owned subsidiary.

A nominal charge

The oil bank charges a nominal USD 0.15 per metric tonne to store fuel per day. For the 100 odd days ending around the middle of April this year, Ceypetco Bunkering Services has stored no less than approximately 5,000 metric tonnes without showing any concern for its resale despite a healthy demand from other licence holders.

The resultant loss for those 105 days has been a staggering Rs. 9.4 million approximately — which translates to something like Rs. 11 million if these funds were utilised in working capital — thanks to the massive overdraft the CPC has been forced to obtain due to the likes of Mihin Lanka for example.

Ceypetco Bunkering Services employs as its Chief Operating Officer, one Uditha Doloswala whose employment with the CPC goes back quite a while —  enough time, for Doloswala to know not just some of the ropes but all the ropes. For reasons perhaps only best known to him, Doloswala as the principal officer at the CPC bunkering service arm has been steadfast in his advice to both the Chairman and the Minister that the oil in the storage terminal should not be sold for the moment  — or rather he has made the task of selling that oil so onerous that it remains unsold.

Put on hold

Immediately after the new Chairman assumed office he put on hold the continued supply of bunkers to Interocean Energy. It was  and is  construed that the CPC was actually losing money due to its continued supply of bunkers to Interocean Energy.

However, the facts are quite simple — the formula applied to the price that Interocean was to pay, was so iniquitous that the CPC was actually incurring a loss. With a margin of approximately USD 20 per metric tonne there was certainly no profit and they were struggling to cover their direct costs.

Therefore, with the entry of Asoka Thoradeniya, he lost no time in stopping such supplies forthwith — despite the camaraderie enjoyed by Interocean and the line Minister.

Relying on advice

For over three months, the CPC Chairman has been relying on the advice of his finance department and Uditha Doloswala, to come up with the necessary information in order that a strategy is devised to supply bunker fuels in a level playing field to all bunker licence holders interested in purchasing fuel from the CPC. The economies of scale dictates that it is far more advantageous to purchase CPC imported bunkers as opposed to purchasing smaller quantities and then importing it to Sri Lanka.

This quest for information and the subsequent misinformation has meant that the bottom line of the CPC will be affected. There is so much of bureaucracy and red tape that the Chairman is reduced to twiddling his thumbs, waiting for information to devise strategy.

Disgraceful

It is disgraceful that professionals like Doloswala and the finance department have to make devising a new pricing strategy so complicated. After years at the CPC they both know a thing or two about the overheads and operational costs directly related to the sale and delivery of bunkers. The only other thing to do is to add the mean price of fuel in the region, the Mean of the Platts Singapore price. Add your margin and you have a realistic pricing formula.

It beggars belief that this information cannot be given on a realistic basis in order that CPC can get on with the business of selling fuel to bunker licence holders.

In the meantime the CPC continues to accrue losses, causing much frustration in the bunker industry. Finally after much lobbying and indeed to placate a very worried Minister, the CPC made a hasty attempt to invite offers for the fuel in its storage. The timing however has led to accusations that the transaction was done in favour of one party and allegedly to the detriment of the others also invited to make an offer.

Unrealistic formulae

Admittedly the value of the oil in storage has gone up in value due to fluctuations in prices; the real point is that the CPC is not in the business of oil speculating. It is in the business of importing and retailing fuel and that is the business that it should be getting on with. The last time the CPC attempted to speculate on oil, it placed a potential liability of some USD 800 million on this country’s Treasury.

With that in mind, it is about time that persons paid to do a honest day’s work should deliver. Deliver prudent practices and results. If they are unable to — due to misguided policies and stratagems which may or may not hide corrupt practices — then its about time they retired from service.

The CPC in the meantime continues to offer unrealistic formulae to bunker licence holders on a weekly basis to purchase fuel. The CPC bunkering business basically is going nowhere — neither is Sri Lanka’s bunker industry as a whole — which is contrary to the stated aim of the government to liberalise the bunkering industry.