22nd April 2001
Editorial/Opinion| Plus| Sports|
What was the rationale behind the latest increase in prices?
Like I said in the statement we issued last week, crude oil prices reached its highest ever in 2000 where prices rose to US $ 31 per barrel. In 1999 prices were as low as US $ 10 per barrel. A US $1 increase in crude price means an increase of 1.4 billion rupees per year for us.
The other important aspect that we are subject to is the exchange rate fluctuations. In mid-2000 it was 73 rupees per dollar and now it's at 87 rupees per dollar. The corresponding increase in local prices that we enforced was not in keeping with the changes in overseas prices and exchange rate fluctuations. Unlike Shell and Caltex, we don't pass the burden immediately to the public. We live in the hope that prices may come down.
The rise in international crude oil prices last year was by 200 percent compared to prices in mid 1999 while local prices rose by about 100 percent.
So, you have not still recovered your losses or broken even?
Yes, in addition to that we have the exchange rate fluctuations to worry about which the CPC is not recovering in any way at the moment. If we want to do this and recover the entire sum in one shot, we would have to increase the price by double the latest price hike (ie - from three rupees to six rupees per litre for diesel.
We are not alone in the high prices scenario. In India, Pakistan and even Britain where there is local production, local fuel prices have gone up. In Sri Lanka we are totally dependant on imports.
Is there a subsidy on diesel or kerosene?
There is no subsidy. There is what we refer to as a cross subsidy, where petrol prices are raised to subsidise diesel. If we equate the diesel price to that of petrol, we can reduce the petrol price to say 35 rupees per litre.
What would the actual price of petrol be if there were no cross subsidies?
We can run the corporation at a very big profit if we equate the two. If we sell petrol at 35 rupees per litre and diesel also at 35 rupees per litre we will be more than at breaking even point. We have reached a point where we can't raise petrol prices any further as consumers are moving towards gas-fueled vehicles.
If we raise petrol prices further, not only will we lose revenue but we may also see a sharp slump in sales. We may not be able to run the refinery in such a case. People keep asking us why diesel prices are only being raised and not petrol. This has become a necessity – raising diesel prices only – because if we raise petrol too we will be killing our own market with gas becoming a popular alternate energy source.
But in recent time with gas prices also rising the movement into the gas sector is declining because the margins – in the usage of gas against petrol - are small.
How have you noticed these changes in fuel-buying patterns?
Our petrol sales have gone down with the demand for gas. But in recent times, gas sales are also static and our petrol sales have remained more or less the same.
Do you resort to any forward purchasing of fuel particularly in view of rapid fluctuations in the dollar?
In fact the World Bank has said that the CPC doesn't have the flexibility that private companies have of hedging and buying forward. The Treasury Secretary has suggested that we look into a new procurement mechanism.
We have had discussions with the DFCC Bank, which is now studying our procurement systems and will make proposals, in the next few weeks, in our buying methods. Under the current system, we have an evaluation committee and a cabinet tender board. The CPC calls for tenders and after closing it is awarded on the same day by the cabinet committee. In this system we don't have the right to purchase forward which is a paper transaction. Many major private oil companies in the world are active in the forward purchase market where they for instance purchase forward depending on the rate of exchange.
We are also looking into this system. Forward purchasing in the oil markets is the best option towards cutting costs. We can buy when prices are low and stockpile.
Why the DFCC?
Well we are using them to come up with a proposal because we need a bank to implement such a system. They would also engage foreign consultants. Once they come up with a new procurement system, it has to be approved by the board and the cabinet.
This is a fundamental deviation from the tender procedure.
If you have this flexibility of buying on the forward market, will it help bring down prices?
The World Bank which did a study on the petroleum sector was of the view that if we had this flexibility we would be able to bring down our procurement (buying) costs which in turn would help to trim sales cost.
What is the present purchasing arrangements?
We have (term) contracts with state agencies in Iran, Saudi Arabia, Abu Dhabi and Petronas (Corp) in Malaysia. We buy about two million barrels of crude oil per year, at the prices prevailing on the date of loading, under an approved procurement programme.
The CPC also imports oil products comprising 700,000 tonnes of diesel and 300,000 tonnes of jet kerosene per year on spot tenders. We import slightly more diesel than we produce off crude oil. There are two spot tenders every month.
Under the proposed new procurement scheme we would also be buying in the futures market. We are initially thinking of purchasing 25 percent of our product requirements in the futures market and see how it works and how much we could save for instance. These are all proposals. No decisions have been taken.
With oil prices rising sharply in the recent past, the consumer is burdened with never-ending price increases. Is there any way the government or the CPC can provide some relief to consumers?
The strategy across the world is to do away with subsidies. Lending institutions are insisting on the removal of subsidies. Subsidies in Sri Lanka have been removed on wheat flour and fertilizer and we can't introduce new ones for petroleum.
The cross subsidy is one way of cushioning the blow to consumers but we can't increase this subsidy any more. We can't raise petrol prices as we have reached a point where it could be counter productive. It's a Hobson's choice. We have no other alternative other than raising prices to recover our costs.
If overseas crude oil prices remain at current levels would the CPC still be in a loss situation?
Not so. We may find prices declining and then be able to recover a portion of our losses.
What is the long-term overseas view on the oil market?
Developing countries want oil producers to limit prices to US $ 25 per barrel. If that is maintained we won't incur these huge losses. From January this year to now we have not incurred any losses but broken even with oil prices at US $ 23-24 per barrel. What we are doing now – through the latest price hike – is recovering the losses of last year.
We could have pushed the rate of increase last year and fully recovered our costs but we couldn't do that and had to space out the price revisions otherwise consumers would have complained. So we have to increase prices in instalments.
Is another price revision on the cards?
Not in the near future. We are hoping that prices would remain at current levels or come down and in such a case we could recoup our losses in the next six to eight months without any changes in prices.
Is there pressure on the corporation to give up its monopoly status?
There is pressure on the government to allow the private sector to get involved in the import of the product category. There is pressure to liberalise this segment of the local oil industry and restructure the petroleum sector.
What is the position on this?
That would have to be a policy decision that the government must decide on eventually. I think liberalization would take place at some point of time. Even in India monopolies are being dismantled. It might be good on the long run and make the sector more competitive.
Is the CPC ready for private sector competition if it gave up its monopoly status?
That's one of the reasons for reviewing our procurement procedures and systems. Private oil companies have an edge over us in being able to purchase forward and we need to be competitive to stay in business. We can't compete with the private sector under the archaic rules and regulations now in place at the CPC.
These rules have been in force since 1961 when the corporation was set up.
Is there any government help that has been sought to ease the CPC's loss-making operations?
No. We are paying the government 23 billion rupees as taxes. The CPC contribution to the budget is 10 percent of the total national budget.
What about storage facilities?
Our storage facilities are tight at the moment. We are developing a
tank farm at Muthurajawela where we are hoping to have an extra 200,000
tonnes of storage capacity. At Kolonnawa, we have rebuilt damaged tanks
– destroyed by an LTTE attack in 1995 - and built another six more tanks
with added capacity of 60,000 tonnes. We need more storage space as imports
are rising by six percent annually. We hope to complete the Muthurajawela
project on 115 acres by 2004 at an estimated cost of US $ 81 million. We
have finalized a soft loan from China for this purpose. In the first instance
we will complete building the unloading facility by May 2002 and then build
the tank farm – 18 to 20 tanks - in 18 months time.
Point of view
By K.M.M.B. Kulatunga, P.C., retired Judge of the Supreme CourtUpali Newspapers Ltd., Vs. Eksath Kamkaru Samithiya and others (CA) (1999) 3 Srilr 205 and Eksath Kamkaru Samithiya Vs. Upali Newspapers Ltd., and others S.C. Appeal No. 70/99 S.C.M. 24.08.2000
Over the years the Appellate courts of this country had decided - both before and after the office of the Labour Tribunal President was recognised as a judicial office - that the definition of "industrial dispute" includes a dispute connected with "the termination of services of any person, and ex facie can be the subject of a reference under Section 4(1) of the Industrial Disputes Act ("the Act"). The Supreme Court observed that "it is significant that Section 31B of the Act does not purport to confer exclusive jurisdiction on a Labour Tribunal in this respect"; and that there is no fetter against the reference of even an "individual" dispute connected with the termination of services during the pendancy of an application before a Labour Tribunal in respect of such dispute. Ceylon Printers Limited and another Vs Eksath Kamkaru Samithiya S.C. Appeal No. 31/88 S.C.M. 11.11. 1988 [Thambiah J, H.A.G. de Silva J and Fernando J (unreported)]; Wimalasena Vs Navaratne and others (1978-79) 2SriLR 10 (Ratwatte J and Atukorale J.) and Ceylon Tyre Rebuilding Company Limited Vs. Perera and others (1980) 2SriLR 36 (Wimalaratne J and K.C.E. de Alwis J.).
The submission made in Ceylon Printer's case by H.L. de Silva P.C. and was summarily rejected by the Supreme Court was that the impugned reference was an erosion of the jurisdiction of the Labour Tribunal. In Wimalasena 's case the same counsel (opposed by Ranganathan Q.C.) argued more specifically that as Labour Tribunal Presidents are judicial officers under Article 170 of the Constitution the impugned reference infringed Article 116 of the Constitution being an interference in a judicial proceeding. Hence the Minister had no power to refer such dispute for arbitration under Section 4(1). However, the Court accepted the argument that when the Minister becomes aware of a dispute, he makes an order under Section 4(1) to refer the industrial dispute for settlement by arbitration; and Section 31(B)(2)(b) (which requires the Labour Tribunal President to dismiss the pending application without prejudice to the rights of parties in the industrial dispute) clearly indicates that the Ministers rights prevail over individual workmen's right to go before a Labour Tribunal. A submission that the requirement under Section 31 (B)(2)(b) to dismiss the application before the Labour Tribunal was limited to a case where there had been a prior reference to arbitration was rejected. It was held that the Minister had the power to refer the dispute for settlement by arbitration under Section 4(1); that it was a lawful exercise of the powers vested in the Minister by Statute; and that it does not amount to an interference with the pending proceedings of a Judicial nature.
Mr. H.L. de Silva P.C. raised the identical objection in Ceylon Tyre Re-building Company Limited case but the Court of Appeal again dismissed the objection to the Minister's jurisdiction to refer a dispute pending before the Labour Tribunal for settlement by Arbitration under Section 4(1) of the Act. The court cited the decision in Wimalasena's case where the facts were identical.
In Wimalasena's case and Ceylon Tyre Re-Building Company Limited case the court opined that if the Minister's rights were subject to individual workmen's rights it would be quite easy for a party to an industrial dispute to frustrate the Minister's power under Section 4(1) by "rushing" to a Labour Tribunal with an application under 3lB.
In Upali Newpapers Vs. Ekasath Kamkaru Samithiya and others (1999) 3SriLR 205 (Kulatilaka J. and Jayasuriya J.) the Court of Appeal purported to "distinguish" the previous decision of the Court of Appeal. The court held that the Minister had no jurisdiction to refer a dispute for settlement by arbitration under Section 4(1) of the Act where an application to the Labour Tribunal under Section 3lB was pending. The reasoning of the court was that Labour Tribunal Presidents are now judicial officers under Article 170 of the Constitution; hence such reference would infringe Article 116 of the Constitution which prohibited any direction or other interference with the judiciary.
At page 210, the court entertained a submission by the employer's Counsel "had their Lordships in Wimalasena Vs. Navaratne and others (supra) and Ceylon Tyre Re-Building Company Limited Vs. Perera (supra) the opportunity to consider these aspects, they would have desisted in interpreting that particular Section as giving such wide powers to the Minister so as to violate the provisions of the Constitution".
The Court of Appeal opined that Section 31(B)(2) of the Act would apply only to an application made to a Labour Tribunal subsequent to a reference made by the Minister to an arbitrator.
It is evident that all the points raised before the Court of Appeal in Upali Newspapers case had been raised in the previous cases in the Court of Appeal and had been rejected in well considered judgments; and the acts in all those cases being substantially similar it is not understood how the previous decisions could be distinguished. It is the editor of the Law Report who notes that the previous decisions were "distinguished". In fact what has happened is that the Court of Appeal had not followed those decisions due to the belief that relevant legal issues had not been considered in those cases .
It is also noted that the decision of the Court of Appeal in Upali Newspapers case makes no reference to the judgment of the Supreme Court in Ceylon Printer's case (supra) which held the contrary; hence, the Court of Appeal decision is "per incuriam".
However, on appeal by the trade union in Eksath Kamkaru Samithiya Vs. Upali Newspapers Limited and others S.C. Appeal 70/99 S.C.M. 24.08.2000, the Supreme Court affirmed the judgment of the Court of Appeal without scrutinising the reasoning of the previous decisions. The Supreme Court upheld the holding of the court below, pro forma. Nor does the Supreme Court refer to the Ceylon Printers Case (S.C.) which held the contrary.
In the circumstances it is respectfully submitted that the decision of the Court of Appeal reported in (1999) 3SriLR 205 as well as the Supreme Court decision in appeal are both misconceived and erroneous.
The consequence of the above decisions are more than academic in that the restraints placed on the Minister will create problems in
resolving industrial disputes. Many situations would arise where the Minister will be powerless in bringing about industrial peace by recourse to Section 4(1) which empowers him to refer a dispute for settlement by arbitration to an arbitrator appointed by him or to a Labour Tribunal.
In the instant case, the dispute relating to the termination of services of six workmen was the subject of pending applications filed by their trade union before the Labour Tribunal. In all seven workmen had been dismissed. During the pendancy of the Labour Tribunal applications the Minister referred the dispute in respect of all the seven workmen for settlement by arbitration under Section 4(1) to the 4th respondent who was also the President of the Labour Tribunal before whom the six applications were pending. No objection was taken to the selection of the arbitrator. The arbitrator inquired in to the dispute having dismissed the pending applications in terms of Section 31 (B)(2)(b) and decided that two of the workmen be reinstated with compensation.
The Court of Appeal quashed the award. The appeal of the union against that order.
It is noted that if the reference infringed Article 116(1) of the Constitution, the Minister would be liable to conviction for an offence punishable under Article 116(2). He would also forfeit civic rights for a period of seven years!
It is also submitted that the limitation imposed in interpreting Section 31(B)(2)(b) is contrary to the plain meaning of the Statute. The primary object of the Industrial Dispute Act is, as its preamble shows, and emphasised in Wimalasena's case (page 14) the settlement of industrial disputes. What is more, the Act is a piece of socialistic legislation (vide Sharvananda J. in Estate and Agency Company Limited Vs. Perera 78 N.L.R. (1975) 289 at 296.) As such the court must give it that construction which would enable the realisation of its object and purpose.
The Legislature has placed restraints on adjudication of a dispute by the Labour Tribunal in applications made by individual workmen not only under Section 31(B)(2)(b) but also under Section 31(B)(2)(a) and 31(B)(3) all of which restraints are binding on Labour Tribunal Presidents; for even judicial officers are subject to the statutory law of the land as anybody else.
Kulatilaka J. in his judgment in the Court of Appeal said:
"It is interesting to note that the J.S.C. has published in the Gazette No. 1,052 dated 30.10.1998 notification in which eight Labour Tribunal Presidents have been appointed as Magistrates for the limited purpose of performing duties relating to the enforcement of their orders".
It is respectfully submitted that the above notification would not in any way be additional justification for the judgment of the Court of Appeal.
On the contrary the temporary appointments referred to appear to vest powers in Labour Tribunal Presidents which would be in breach of the principles of natural justice; because the order of a Labour Tribunal is enforced by first convicting the employer for an offence under Section 40(1)(q) of the Act. Upon conviction and punishment of the employer, under Section 43(1) the Labour Tribunal order is enforced under Section 43(2). I am of the opinion that it would be unfair to empower the Labour Tribunal President himself to enforce his order by the exercise of the powers of a Magistrate in terms of Section 43 after convicting the employer for an offence. The appropriate procedure should be to empower the Tribunal itself to enforce its order by enacting amendments to the Act for enforcement of orders not involving the power to try the employer for an offence.
I would respectfully recommend that the issue be decided by a fuller Bench of the Court of Appeal/Supreme Court in another case. In the meantime, the Minister may continue to exercise his powers under Section 4(1) of the Act as was permitted by the previous decisions.
To avoid challenges to the Minister's jurisdiction being taken long after the reference, an amendment to the Industrial Disputes Act may be considered to make it mandatory to raise objections to jurisdictions before the inquiry commences and to have the same determined by way of writ at that stage; failing which the party challenging jurisdiction shall not be permitted to raise the objection after the award is made.
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