State-run Ceylon Petroleum Corporation (CPC) is to request the Treasury to pay back fuel oil subsidy dues running into over rupees twenty billion incurred during the last 24 months.
The Bottom Line learns that a memorandum of cabinet is in the process of being formulated by the Petroleum Resources and Petroleum Resources Development Ministry, appealing either to reimburse losses incurred since November 2008, due to non-payment of subsidy by the Treasury or to set off against taxes due from the CPC.
“The ministry is in the process of calculating the exact amount of losses for the period from 2008 November to 2010 December. In November 2008 the subsidy was withdrawn, and so we have been importing fuel oil at a cost of Rs 52 per litre and selling it to Ceylon Electricity Board (CEB) plus other Independent Power Producers (IPPs) for Rs26. Due to this, the CPC made a loss of Rs12bn during 2009,” a high ranking ministry official said.
Following vehement protests by CPC in the wake of global oil prices going up, it received the government green light to increase the price to Rs40, though still short of Rs15. From furnace (fuel) oil sales, CPC lost a staggering Rs780m each month, he added.
“At present, CPC is importing nearly 30m litres (30,000 tonnes) of low-sulphur fuel oil at an average cost of Rs68 and selling it to Kerawalapitya Combined Cycle Power Plant for Rs52. Losing Rs16 a litre we are incurring a staggering Rs480m loss a month. For other thermal power plants, (CEB and IPPs) we are bringing down nearly 20 million litres (20,000 tonnes) of high-sulphur fuel oil at Rs55 and selling at Rs40 a litre. Losing Rs15 a litre, the CPC is burdened with a nearly Rs300m loss each month,” this official said.
Currently, CPC is making a marginal profit from petrol sales while incurring a marginal loss from both kerosene and diesel fuels.
“If this goes on we will never be able to turnaround CPC and it will soon go bankrupt. What’s more, this is not due to our fault but due to the fault of CEB. What they want is to make profits on their part at the cost of CPC.”
Many had been advocating a cost-reflective pricing mechanism devoid of political interference if the country was to make state entities like the CPC viable to contribute to the growth of the country and move towards a global energy hub.
“Except for the Kerawalapitiya agreement, all other contracts with CEB and IPPs have the clause that CPC will sell fuel at ‘CPC’s retail price or government-decided price’. This is where all troubles begin. Sri Lanka can never become an energy hub if you don’t make CPC profitable. Privatisation is unnecessary, but you need to have an unwavering cost-based pricing system,” this official added.
