CPC crisis due to purchase, storage and distribution issues
In the recent crisis situation of oil supplies experienced by the CPC pushing our country economy to almost a complete halt and breakdown, it is appropriate to analyse the true factors and recommend most urgent solutions to the above problems.
As a person who had worked at this corporation some time ago as a fulltime Working Director, chairing the CPC Stock Review Committee and the Board appointed Audit Committee and also as acting chairman, I like to make some observations, while agreeing with the main reasons identified by the Cabinet Sub Committee – as published in the Sunday Times of 19.11.2017. Problems faced in oil purchases:
- An important organisation like the CPC should urgently set up a ‘Research & Development unit’ which can independently carry out its research and development studies and make available their findings, suggestions and observations to the Minister, Chairman and the Board. This unit should be able to function independently without any political influence and the officials able to carry on with their research under whatever political changes in the government.
Only such a unit will be able to recommend the best options available for oil purchases in the fluctuating oil market.
One good example is the famous oil hedging deals the CPC entered into without proper research done resulted in millions of losses not only to the CPC but to our economy.
What a huge commitment the CPC had to face when world market prices started to fall from the highest price of US$147 per barrel to around 38 per barrel due to the short sighted agreement entered into with international banks.
Though CPC has an open transparent ‘Tender System’ in operation, it doesn’t have the required team of officials who can research, analyse and make short and long term market predictions on the behavior of international oil markets.
It might be unfair to put the entire blame on CPC when it has to do a ‘balancing act’ in the pricing, procurement, storage and distribution of oil to please the Government and the people.
Problems of Storage:
- The present storage available to the CPC is not sufficient to carry stocks over 30 days. One month’s stock is hardly sufficient taking into consideration procurement tender procedures, delivery times, turnaround times of ships, sampling procedures and discharge of fuel from ship tanks to CPC storage tanks at Kolonnawa and Muthurajawela. Hence keeping an allowance for unforeseen things happening (even worker unrest, strikes which are also common here) at least the recommended three months fuel stock should be maintained by the CPC at all times.
I was surprised to note that even though there is a special committee set up to strictly review and monitor oil storage at the CPC (called Weekly Stock Review Committee) which meets every week and initiates corrective action as required due to the reason of having to carry low stocks (3-4 weeks), a crisis situation had evolved.
It never happened earlier as this meeting having all relevant heads of divisions or their representatives was considered the most important weekly review meeting of oil stocks which even led to emergency transfers, procurements as required but very rarely happening
It is very unfortunate that we had to lease out the oil tanks belonging to the CPC at Trincomalee in spite of a lot of protest by the unions and the public. Being a vital national asset of the country, we should have had the controlling powers even if we were forced to enter into such an agreement with a foreign country or company.
It is not too late even now to renegotiate with Indian Oil Corp (IOC) and India to get back those tanks.
China is a good example of such additional storage where its largest oil producer, the China National Petroleum Corp. stores over 50 million barrels of crude oil in the largest Oil reserve in the Xinjiang region initially expecting to top up their reserves up to 146 million barrels, in order to guarantee supplies in times of need.
Distribution and marketing issues:
In distribution and transport of oil from CPC storage tanks to their petrol sheds, new cost efficient techniques and methods of handling must be introduced and the current systems have to be improved. Every possible attempt must be made to minimise wastage and achieve speed in all deliveries. This should apply to the discharge of oil from the ship, pumping of oil to storage tanks and loading and unloading of fuel carriers and bowsers at retail depots and petrol sheds.
I am personally aware of wastage taking place in the distribution network which can be minimised.
Most of the problems in distribution, transport and marketing arise due to political influences of petrol shed and bowser owners as most of these are decided on political affiliations. A more transparent process is required.
Revamping the refinery to expand production:
There had been a proposal for refinery expansion from the present 50,000 barrels to 100,000 barrels per day about a decade ago but had been delayed due to many reasons. Such an improvement in production capacity will also result in increasing the output of LP gas also which has become a vital fuel for cooking and which is causing hardships to our people as the procurement and distribution is flawed.
Regulatory Authority:
There is a need to set up a Regulatory Authority to monitor all aspects and activity in the petroleum and LP gas industry so that all Government and private controlled operations such as the CPC, LIOC, CPSTL (storage terminal), Litro Gas and Laufgs Gas would be regulated.
I have made these observations due to my own experience of work at the CPC over a period of five years in the past, and now in the public interest as this organisation is the foremost national venture that has to be preserved, protected and professionally nurtured to achieve its objectives. Oil imports account for around 25 per cent of the total imports but has absorbed around 75 per cent of our export earnings annually. This shows how important the CPC is to the economy.
(The writer is a former director of the CPC, former General Manager – Shell Gas Lanka (Pvt) Ltd among other state positions)