India getting driving seat for oil retailing?
The UFPA government's decision to change the terms of entry of the third player into petroleum retailing has raised the possibility of Indian domination of this crucial sector and the State earning a much lower revenue from the deal.

The government has decided not to go ahead with the former UNP government's decision to accept the bid by China's Sinopec to be the third player in retailing of fuel under the petroleum sector reforms.

It has changed the terms of the original bidding process. It is offering one-third of the common-user facility grouping all pipeline and storage facilities, as before, but only 49 per cent ownership of the retail outlets company with management control, and not full ownership as was the basis on which bids were originally called for.

Ceylon Petroleum Corporation (Ceypetco) will retain 51 per cent ownership of the retail company established for the three players. Sinopec (Hong Kong) Ltd., selected on the basis of having made the highest bid, has rejected the new terms but the two Indian firms among the final three short-listed players, Bharat Petroleum Corporation Ltd. and Hindustan Petroleum Corporation Ltd. are believed to be still interested.

Officials said this raised the prospect of Indian domination of petroleum retailing, a key sector of the economy, usually regarded as a strategic activity, given the presence of the Indian Oil Corporation. The IOC came in as the second player and ended the monopoly of Ceypetco by taking over 100 retail outlets.

The new policy also means that the government will earn much less from the deal because the bidders would quote lower under the new terms offered since they would not have full ownership of the retail outlets.

"The government would also be faced with the problem of raising the funds required to upgrade the retail outlets and make them more efficient, this being the objective of the reforms," a government official said. "From where will the government find the money?"

Officials also said it was not clear if the new regime had given any thought to possible Indian domination of petroleum retailing. The new chairman of the Public Enterprises Reform Commission Nihal Amarasekera said no final decision had yet been taken on the position of the third player and added it would only be done after the full commission is appointed and the new policy enunciated.

He declined further comment on the issue but said PERC's role was not purely to privatise government organisations but to reform them and make them operate more efficiently. Government officials said the new government's policy with regard to reforms and privatisation was still unclear and that the whole issue was "in limbo".

Sinopec came first in the evaluation of bids in a fair and transparent procedure, offering a price far higher than the two Indian firms. The final offers from the short-listed bidders were $88 million from China's Sinopec (Hong Kong) Ltd., $81 million from Bharat Petroleum Corporation Ltd., and $77 million from Hindustan Petroleum Corporation Ltd.

Officials also said Sinopec's offer was much higher than what IOC paid on a negotiated basis - $75 million - for being given the choice to "cherry pick" retail outlets and the right to start operations pending valuation and final negotiations.

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