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“CPC has no future”
If
the Ceylon Petroleum Corporation (CPC) restructuring programme had
been carried out to the end, the current price of petroleum products
could have been reduced by at least Rs. 20 per litre, asserted former
CPC Chairman Daham Wimalasena.
In an interview with The Bottom Line, Wimalasena, who is presently
Sri Lanka Cricket Foundation President, pointed out that the CPC
has no future for the simple reason that LIOC is already in a position
to sell at a lesser price than CPC.
“LIOC costs are much less. CPC has already lost the retail
market. LIOC will cover up previous losses with this year’s
profits. Next year it can tell the government that it is in a position
to sell at a lower price – the government will never be able
to match it,” he stated.
The quest for oil, even if it were to be discovered in adequate
quantities, would not solve the fuel crisis since it would take
at least five to six years to make use of it commercially, he added.
Following are excerpts:
 Q:
What are the issues that you faced during your tenure?
A:
At the time we took over, the Corporation was almost totally bankrupt,
with huge debts and huge losses. The new government was also not
in a position to finance the CPC’s operations and cover up
its losses. The government was also almost bankrupt. The solution
was to sell part of the assets of the CPC and its business and raise
the money to cover the losses.
In addition, for many years, CPC was run by politicians based on
political necessities, such as not increasing prices when you have
to increase prices. The UNP government wanted to take politics out
of the decision-making process.
To solve both issues, we liberalised the petroleum industry by inviting
foreign players to take part in the retail trade. We felt that the
consumer would ultimately benefit from competition. We were against
state monopoly or total privatisation. Competition is what has helped
Sri Lanka in the banking sector, insurance sector, etc. This is
very obvious to everyone. They are competing with each other and
the consumers are benefiting.
That is the situation we wanted to create in the petroleum industry
– take politics out and make it a purely commercial exercise,
but in a very competitive environment. Although we couldn’t
do it, we also wanted to convert the corporation into a fully government-owned
company, which would give it flexibility to compete.
Along with this we also introduced a pricing formula. We did it
for two years on the condition that if the government did not approve
of the price according to the pricing formula, the government would
have to subsidise CPC. This restructuring process was stopped when
the UNP government fell in 2004. Now the situation is worse in a
way because the operation was begun and ever completed.
CPC is now facing intense competition from LIOC. CPC has not done
anything to reduce its costs. Operational, administrative and financial
costs – all have doubled. The exchange rate, not being managed
efficiently by the government, has also contributed. Exchange rate,
internal costs and marketing costs – all these are controllable.
But instead of controlling it, they are putting the entire blame
on the uncontrollable price increase of fuel.
Q: There is a fuel crisis in
the country, with fuel prices rising daily. How do you think the
fuel crisis can be resolved?
A: Firstly, the exchange rate plays a big part – we
have to manage the economy much better. The UNP at that time was
expecting US$ 4.5 billion as aid, which did not come because the
government fell. That would have reduced the exchange rate.
The other long-term solution is to increase the refining capacity
at the CPC refineries. Towards this end, we had an investor with
a very attractive Build-Own-Operate-Transfer (BOOT) project. That
has been abandoned. As a result, we are importing a lot of finished
products. If the pricing formula was continued, today’s prices
would be much less.
There is another short-term solution, which we did in the ’80s.
There are no fuel conservation measures at all now. For instance,
import of diesel cars should be banned. This is in operation in
many countries. You should allow diesel vehicles only for public
transport. Diesel should not be allowed for private cars.
If the restructuring programme had been carried out to the end,
the current price of petroleum products could have been reduced
by at least Rs. 20 per litre. CPC has no future for the simple reason
that LIOC is already in a position to sell at a lesser price than
CPC. LIOC costs are much less. CPC has already lost the retail market.
LIOC will cover up previous losses with this year’s profits.
Next year it can tell the government that it is in a position to
sell at a lower price – the government will never be able to
match it.
Q: What about CPC privatisation?
One-third of the CPC held by the Treasury was supposed to be sold
to another company. What is the present situation in this regard?
A: I would not call it privatisation. I would call it restructuring.
We sold part of it. That was not privatisation. This government
did not want to proceed with the sale of the third held by the Treasury.
CPC is a government corporation, owned by the Treasury on behalf
of the government. CPC kept one-third of the company, one-third
was sold to LIOC and the other was to be sold to Sinopec, to be
the third player. Nothing is happening in this regard right now.
At least one result of not proceeding with the sale was that one-third
of filling stations are now neglected.
Actually, no one will come in as a third player if the pricing formula
is not in operation. Who will come and invest if they are not sure
of getting a profit? They can’t fix prices – the government
fixes prices. So why take a risk? The stations that have been set
aside for a third player have to be distributed among CPC and LIOC.
Q: How can the outstanding debt
be resolved? Institutions such as the Ceylon Electricity Board (CEB)
owe a lot to CPC. Can the debt be recovered?
A: The problem here is that the biggest debtors are CEB,
Sri Lanka Railways and the armed services. They are all funded by
the Treasury. Invariably, the Treasury delays funding them and calls
upon CPC to give them credit. Now there is a huge debt owed to the
CPC, which is also a major reason for the present price increase.
The easy way out – temporary patchwork – is to ask the
CPC for credit.
Q: How can fuel storage and
distribution issues be addressed?
A: Firstly, the use of the new storage tank terminal at Muthurajawela
should be maximised. Then prices can be reduced. Secondly, the issue
of third player stations should be settled.
Q: What are your views on oil
exploration in the backdrop of the delimitation of Sri Lanka’s
territorial waters and the expansion of Sri Lanka’s Exclusive
Economic Zone?
A: Seismic surveys have been done off the western coast.
Earlier we did studies about the Mannar Basin. During the last two
to three years, studies were done in the Mannar Peninsula right
up to Galle, in a fairly deep sea.
We know there is some oil or gas, but we do not know for sure whether
we could find it in economic quantities. This is especially important
because such a deep sea operation is going to cost a lot. Therefore,
the volumes available for extraction must be fairly large. We have
not done that and it is the duty of the people who have agreed to
explore at their own cost and at their own risk. It is actually
very silly for anybody to say – as stated by some people in
recent times – that there will be oil next year or the following
year. If they find oil in adequate quantities, it will take at least
five to six years to make use of it commercially.
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