News
CPC where oil and irregularities mix
Large-scale financial irregularities and mismanagement at the cash-strapped Ceylon Petroleum Corporation (CPC) have been exposed by the Auditor General, according to the corporation’s annual report presented to Parliament.
The report refers to losses incurred by the import of substandard fuel, the fallout of the infamous hedging deal and payment of bonus to the staff when the corporation was running at a massive loss.
The Auditor General points out that the entry of the Lanka Indian Oil Company (LIOC) into the Sri Lanka market was done in a manner that compromised the position of the CPC.
Oil from both CPC and LIOC are stored in one tank at the Kolonnawa terminal (file pic)
“Since the corporation has had to commit significant amount of its resources, both capital and human, for this purpose, a proper and in-depth analysis of the impacts that would arise through this system integration should have been done with the assistance of experts in the field of Enterprise Resource Planning (ERP) ERP Systems,” the Auditor General says.
He also points to the lack of a proper agreement or a Memorandum of Understanding (MOU) among the CPC, the Ceylon Petroleum Storage Terminal Limited and the LIOC with regard to their respective responsibilities and refers to risks involved in stock-taking.
The risks involved the inability to take separate inventories of the CPC and LIOC as they were stored in the same tanks at the Kolonnawa terminal, the AG says adding that this could not only lead to complications in identifying balances of each institution but also to mixing of two different products of different qualities.
The AG also says some of the officers who were nominated for the physical verification team had not participated while some officers 
had attended it without prior approval. The list of substitute officers in place of the absentees had not been furnished for auditing purposes.
“Therefore it appears that the Corporation had not paid attention to safeguard its interests in relation to the transaction of this venture,” the AG says in his report.The AG also makes a reference to the 2003 agreement between the Government of Sri Lanka/CPC and the LIOC relating to the oil tank farm installation at China Bay.
According to the report, the CPC had agreed to lease the storage facility and the land to the LIOC for 35 years and a lease agreement had to be executed within six months from the date of the agreement. However, even by the end of 2010, the CPC had not entered into a lease agreement and as a result, no lease rentals had been received from the LIOC for the use of this storage facility, even though it had been using the tanks since 2003.
In 2011, the CPC chairman informed the Auditor General that the Corporation did not own the China Bay land to sign a lease agreement with the LIOC.
However, following the CPC’s appeal to Trincomalee’s District Secretary, the DS had agreed to give the land to the CPC on a long lease so that it could sub lease it to the LIOC.
The other highlights of the report include:
4 The agreement between a private gas company and the CPC in respect of liquid petroleum gas sales had expired in October 2006 but the Corporation had continued to supply gas to the company on a letter given by the Minister of Petroleum Industries.
4 The CPC had made bunkering business through a private company in April 2008 with the intention of carrying out that business in the future. The CPC has said that as the environment was not favourable for it at the commencement of the business, it had adopted different strategies to compete with others in the market. Therefore, from April to December 2008 and January-May 2009, the CPC has sold fuel at a reduced price to a private company and as a result sustained losses amounting to over Rs. 200 million in all.However, the CPC has not engaged in bunkering business since April 2009.
4 There were no standards for allowable operational loss of fuel deliveries through bowsers and wagons and storage at deports and terminals. The practice followed by the CPC was to allow the Own, Use and Process loss figure at five per cent for crude oil input and to allow a 0.5 per cent for evaporation loss for each transfer between two locations. However, a loss of Rs. 886 million had been incurred in connection with evaporation, processing and stock handling and product transferring etc. during 2010.
4 The CPC had made major investments amounting to Rs. 2, 556 million in various portfolios. However, no income was generated on these investments as at December 31, 2010.
4 Officers who are not entitled to official motor vehicles had been given such facility on the approval of the Board of Directors or the Chairman. As such eight officers of the CPC has been paid Rs. 1.8 million as fuel and travelling allowances in 2010.
4 The title deeds of four lands valued at Rs. 67 million belonging to the Sapugaskanda mini terminal had not been made available to audit while 25 acres of land valued at Rs. 259 million at Muthurajawela had been shown as an asset even though there were no title deeds for Vesting Order made available to establish the ownership.
4 While under financial regulations, bonuses can be paid to employees out of the profit earned by the CPC, the Board of Directors had approved and paid bonuses amounting to Rs. 147 million, Rs. 148 million and Rs. 179 million in the years 2008, 2009 and 2010 respectively despite the Corporation incurring losses all these years.
Meanwhile, the CPC’s annual report for 2010 was tabled in the House only this month contrary to the requirements of the 2002 Public Finance Circular which makes it mandatory that such reports be tabled within 150 days after the close of each financial year.
The Auditor General in his report dated September, 2012, noted that even though the Public Enterprises Circular of June 2003 says that draft annual financial statements should be tendered to the AG within 60 days after the close of the financial year, these statements were made available to him only in May 2011.
The Chairman of the Corporation had informed the AG that the annual reports between 2008-2010 had been prepared but due to remarks contained in them on the hedging transaction, the Attorney General had instructed not to publish them.
The Committee on Public Enterprises (COPE) in its report of July this year noted that there were delays in the tabling of performance reports by many state institutions and said that it is “one of the important measures showing accountability towards the people and establishing democracy which people are entitled to enjoy.”