The Treasury is covering heavy dues owed by the Ceylon Electricity Board (CEB) to Ceylon Petroleum Corporation (CPC) while providing a government subsidy to the CEB without burdening consumers, Finance Ministry sources said. This has paved the way for the CEB to declare a profit of Rs.5 billion during the 2010 financial year.
They said the Treasury recently issued treasury bonds to the value Rs. 52 billion to the CPC covering the dues prior to 2009.12.31 owed by the CEB. On the other hand the government has given a subsidy to the CEB to avoid its debt which the CEB anticipated from the beginning of 2010 and made possible for the power utility to avoid taxing the people, a senior Ministry official said. The operational losses, state enterprises lending to each other creating 'circular debt' among themselves while cross-subsidies pass losses among each other masked the true picture from the public, he added.
Minister of Petroleum Resources Susil Premajayantha told the Business Times that the Treasury issued bonds to the CPC covering the CEB dues for its purchases of heavy fuel. On the other hand the CPC has been exempted from income tax by the government as announced in the 2011 budget. This has helped the CPC to supply fuel without increasing its price in the face of rising world oil prices, he said.
He revealed that the CEB is now paying for its purchases of heavy fuel, and has also settled the 2010 dues.
The CPC will stop supplying fuel at concessionary rates to the CEB by the end of the year, he said adding that the CPC will sell a litre of heavy fuel to the CEB at the market price of Rs. 82 per litre from next year. The CPC currently sells a litre of heavy fuel to the CEB at a subsidised rate of Rs. 40.
The CPC a few days back announced that most of its losses have been due to the sale of fuel at concessionary rates to the power utility. However, the CEB claimed that it had paid all dues to the CPC and its Rs. 5 billion profit for 2010 was recorded after paying all its dues. Hence for the first time in history, during 2010 the CEB has been able to settle all dues payable to the Petroleum Corporation within the year, Minister of Power and Energy Patali Champika Ranawaka told the Business Times. The CEB has up to August 31, 2010 purchased heavy fuel from the CPC for a mere Rs. 26 but subsequent to discussions between the two agencies, the amount was increased to Rs. 40 per litre. Furthermore the purchase of diesel will be sold according to the normal market rate.
In the production process of petroleum, heavy fuel remains as a residual product after the purification process of diesel and petrol. It is 38% of the entire process. The remaining heavy fuel percentage is far greater than all petroleum products. As a solution to this the CEB has set up thermal power stations such as Sapugaskanda. Minister Ranawake said that a major factor was that the CPC agreed to supply the heavy fuel which the CPC had no use for, free of charge to the CEB. Therefore it is obvious that the CPC is not incurring losses due to the supply of heavy fuel free of charge, but rather due to long standing problems in the purification process, he added.
But Minister Premajayantha said that there was no agreement between the CPC and CEB to supply heavy fuel free of charge. He reiterated that the CEB is now paying for its purchases of heavy fuel and the CPC is to be positioned to provide their services on cost recovery basis and implement cost efficient production and service delivery strategies. The CPC had to supply fuel to three armed forces and several other institutions during the period of war free of charge but now the corporation is not subsidizing any of these institutions, he said.