After LIOC, now CPC subsidy
Government owes Rs 9.3 billion as subsidies
to state supplier
The Ceylon Petroleum Corporation (CPC), in a new
turn of events in the crisis over delayed payment of a government
subsidy to the Lanka India Oil Company (LIOC), will now find its
own subsidy ending from July 1 paving the way for a possible free-market
structure, officials said.
They said subsidies to both the CPC and the LIOC
will end on this day to ensure a level playing field in price fixing
for the only two players in the fuel import and distribution sector.
A new tripartite agreement involving the government, CPC and LIOC
will be entered into to create this new mechanism.
CPC and CPC Storage Terminals Limited (CPCSTL)
unions are said to be urging higher authorities for them (unions)
to be involved in the current negotiations that would pave the way
for further liberalisation in this sector. “The government
will amend the CPC-LIOC agreement and facilitate a common policy
for the two entities in terms of pricing strategy and will sign
a fresh tripartite agreement. They will revise the present agreement
which has been effective from February 2004 and ends in December
2008,” a senior CPC official told The Sunday Times FT.
The new development comes on the back of earlier
threats by the LIOC to put up its shutters as delays in the payment
of the government subsidy saw debts piling up for the company. The
Sunday Times last week quoted Treasury Secretary Dr. P. B. Jayasundera
as saying that the government will allow LIOC to determine selling
prices of fuel products including petrol and diesel with effect
from July 1.
On the disputed subsidy arrears of Rs 7.4 billion,
he said the Treasury and the LIOC have decided to wave off Rs 2.5
billion while from the remaining sum the government will pay Rs
1 billion in cash and the rest in bonds.
K. Ramakrishnan, Managing Director, LIOC, speaking
to the newspaper from India, confirmed that the government will
pay Rs.1 billion upfront and the balance through bonds.
He said the government informed them that no more
subsidies will be given to both LIOC and CPC who would be allowed
to fix fuel prices during joint consultations. The LIOC chief said
the LIOC board is discussing this proposal and “we will be
finalising everything by the first week of July.”
The senior CPC official said that the government
is planning to terminate the present agreement (with both parties)
and amend the effective date to a two-year period instead of five
years. He said that he expected the CPC and the CPCSTL unions to
push for a representation in the discussions for a fresh agreement
because they seem to be agitated about any new deal. “We want
the Treasury to involve CPC and CPCSTL unions and we want to make
sure that the government will not create an Indian monopoly as they
have done in the past,” he said.
“We are not against another agreement, but
it should not have defects such as the present one. The LIOC got
the best filling stations and the China Bay Terminal and even a
BOI status. This was very one sided and all the sectors of the sector,
be it gas or lubricants, have a monopoly. This is very unfair by
the consumer and the country,” he said.
The government, he said, owes the CPC an Rs.9.3
billion subsidy for the period of January to April. “The government
has said that they have not allocated this amount from the budget
as yet, but they are liable,” he added.