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Foreign, local consortium backs refinery project
Two big Japanese and South Korean trading houses and two local blue chip conglomerates are backing the project to build a crude oil refinery cum power plant complex next to the Ceylon Petroleum Corporation (CPC) refinery.

The project developer, Dr. Lucky Wijetilleke, president of Global Energy and Industrial Operations Inc. (GEO), which is promoting the venture, said the two big foreign firms were now holding talks on forming a consortium to support the project.
Two other smaller local firms, a construction company and a shipping industry company, are also involved, he said in an interview. He declined to identify the companies.

The Cabinet last week approved the project despite the earlier objections of President Chandrika Kumaratunga who alleged it violated tender procedures and was a move to privatise the CPC.

The project consists of a 75,000 bpd (barrels per day) refinery and two 150MW combined-cycle gas-turbine power plants. It will cost $564 million. The developers plan to rent under-utilised CPC facilities and pay CPC a rental for 20 years, and then transfer the refinery to the CPC.

Dr. Wijetilleke, who was also the promoter of a big $2 billion refinery in Hambantota in the mid-1990s under the previous regime, said they opted for a "compact" refinery because a big one was no longer viable. This was because of excess crude oil refining capacity in the region and current low refining margins.

"It is now very difficult to raise big money that would be required for big 'greenfield' refining projects," said the former CPC managing director who also was a World Bank energy expert for 17 years. The infrastructure costs alone for coal or LNG (Liquified Natural Gas) importing facilities would be too expensive - around $400 million.

"The opportunity that was there for a large refinery is no longer present," Dr. Wijetilleke said. GEO, formed in 1996 by Dr. Wijetilleke and two former World Bank colleagues, believes it can keep project costs down by using under-utilised CPC infrastructure, through speedy implementation, and by supplying to niche markets.
"That's why we decided on a small refinery that would be an add-on to the existing refinery," he said. "Our cost of production is lower."

GEO is negotiating a power purchase agreement with the Ceylon Electricity Board, offering to supply power at not more than 4.5 US cents per kWh with crude oil at $18 a barrel and 5.8 US cents per kWh if crude oil was at $32 a barrel. "I told the CEB our power will be cheaper than what they are buying from others now which is 6.4 - 7.8 US cents per kilowatt hour," Dr. Wijetilleke said.

GEO's aim is to identify energy and industrial projects in developing countries at its own expense and promote them among potential investors for funding and implementation. The Sapugaskande refinery project offers an "optimum combination of fuel and technology".

The refinery produces 'gas turbine fuel' for the CEB's combined-cycle gas-turbine (CCGT) power plants, which next to LNG is the cleanest fossil fuel available.
The CCGT plants can be switched to LNG later on as demand for thermal power grows, said Dr. Wijetilleke.

GEO is also eyeing niche export markets for petroleum products and expects to have a product off-take agreement with consortium members. The current excess refining capacity in the region is expected to turn into a shortfall by 2010, assuming no new refineries are built by then.

So there is potential for "marginal" exports of small quantities of products like LPG, low sulphur diesel, jet kerosene and petrochemical feedstock. India and China could have a potential export market of 780,000 bpd because of growing demand and the projected shortfall in refining capacity by 2010.

Dr. Wijetilleke said he was not deterred by his previous bad experience in trying to promote an energy project in Hambantota where he took his local partner to courts for breach of contract.

"I'm not going to give up this country just because I was treated badly," he said. "I love this country and I intend coming back here. "If people like us don't come back - with our experience and the contacts we've made - who else is going to bring it back?" he asked.

Resounding 'No' to fresh poll
The business community does not want another general election. An overwhelming majority of business leaders polled by The Sunday Times FT in a snap opinion survey last Friday voted against the idea of an election.

Among those polled, most said another election was not desirable while others were in favour of a poll. Those who favoured a poll said it might help to clear the prevailing uncertainty and that they hoped it would result in a more stable government if the ruling party were able to increase the number of seats in parliament.

Business leaders who opposed another election said it would be "bad for business" and could make the state of the economy deteriorate even further.

Ask Michael about tea via Internet
By Suren Gnanaraj
Tea trade veteran Michael de Zoysa will use his 35 years of expertise in the business to share his views about the brew on a web site launched by Gordon Frazer and Company.

He would cover a host of topics ranging from international tea market fluctuations to predictions on the future of the industry. De Zoysa, Gordon Frazer's managing director, will also answer questions put forward to him via the site www.keellstea.com that went online last week with the launch of the new John Keells tea for export called 'Fresh Thoughts'.

Health issues have also been addressed under the 'Tea and Health' icon, which will be constantly updated by an Australian scientist who has agreed to answer any queries raised by consumers or buyers.

Atheek Marikar, Business Development Manager for Gordon Frazer and Company, said that the web site was designed to simplify business transactions between the host company and foreign bulk tea buyers. A transaction that normally takes as long as three weeks can be completed within a week under the new system.

Battle brewing at George Steuarts
A battle is brewing at George Steuart and Co - the old established plantation firm which has diversified in recent years - between its new investors and old shareholders including former chairman Scott Dirckze, company sources said.

The issue has been taken to courts by both parties with temporary orders being issued by the Colombo Commercial High Court in favour of either side. About two years ago, Dubsy Kanagaratnam, a Sri Lankan investor based in Britain, secured a 34 percent stake in the company by purchasing 625,000 shares held by Merchant Bank, making him the single largest shareholder.

Last week an interim order was issued in favour of Kanagaratnam, also a director of the company, allowing the business affairs of the company and the subsidiaries to be jointly managed by S. Skandakumar as chairman and J.M. Wimalagooneratne as the managing director.

Both were allowed to sign cheques issued by the company. But the Commercial Court also banned meetings of the board of directors or shareholders of the company unless with court permission.

Earlier Dirckze, K.M. de Silva, shareholder and Ranjith Wickramasinghe, Finance Director/shareholder filed a petition in court alleging "oppression and mismanagement of minority shareholdings by the directors."

The court then issued an interim order preventing Kanagaratnam and other directors from exercising their rights. That order was set aside last week. The case is proceeding.(RC)

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