CPC earns from hedging but price hike looms

By Santhush Fernando
Despite a staggering loss of Rs 1.3 billion incurred during March, state oil utility CPC has been able to earn Rs. 585 million from hedging but there is less cheer for motorists as price hike looms.

CPC is losing Rs. 20 on each barrel as the government had promised not to hike up prices during the traditional New Year season. However, CPC will have to immediately consider a price remission as the last price hike came into effect in January 2008.

Up to April 15, the CPC has lost a staggering Rs. 7,315 million for the current year alone, despite a number of creditable initiatives by CPC Chairman Asantha de Mel, which prevented the CPC from making losses last year.

CPC has made hedging gains of US$ 5.4 million from oil imports for last month while the benchmark sweet crude oil remained well over US$ 111 a barrel, CEO of Citibank Sri Lanka, Denis Hussey said.

The state oil utility is making a loss of Rs. 51 per litre for 145 million litres of diesel and Rs. 40 a litre of kerosene oil, with the former alone amounting to Rs. 5.2 billion though it had a significant gain of Rs. 200 million from selling petrol at Rs. 5 above its cost.

However, Petroleum Minister A.H.M. Fowzie said that although the government refrained from increasing prices during the Avurudhu season, fuel station owners had stockpiled oil expecting the impending price hike. Action is being contemplated against the errant dealers who, if found guilty, face the threat of cancellation of their dealership licensces.

“I will be meeting the Organisation of Petroleum Exporting Countries (OPEC) Secretary General in Rome and have also requested a meeting with the OPEC Chairman to explain that favouring oil producing economies over the economies of oil consuming countries is detrimental in the long run and has lead to revolting in some countries,” Minister Fowzie said.

“I also hope to invite the OPEC Chairman to visit Sri Lanka and I am hopeful that they will accept my proposals regarding the repercussions of unchecked pricing of oil,” the Minister added.

The high escalation of oil prices, which resulted in high inflation worldwide, has led the public to revolt, from Haiti to Philippines, against democratically-elected governments, paving way for dictatorships.

A Rs. 2,045 million loss was incurred during January, the month in which the earlier price revision took place, while Rs. 1,216 and Rs. 3,769 million had to be borne by the CPC during February and March respectively.

Unfortunately for the CPC, one of its profit-making arms, the refinery, had not been functional in January and February but after commencing operations in the following month, it had been able to generate a profit of around Rs. 110 million, which cushioned part of the losses.

Since CPC had reached its single borrower limit with Citibank, it had commenced hedging operations with Standard Chartered Bank, from which it was able to gain more profit, of nearly US$ 1.6 million. Total profits gained through hedging for the year amounted to nearly US$ 10 million and all this was without investing a single cent, CPC revealed.

“With these successes, CPC is hopeful of hedging up to 30 to 40 percent of its requirement,” CPC Chairman de Mel asserted.