The Government is absorbing heavy losses incurred by Ceylon Petroleum Corporation (CPC) despite the recent fuel price hike as it is importing more, costlier refined petroleum products because of low output at the Sapugaskanda refinery, Petroleum Industries Minister Susil Premajayantha said.
The 42 year-old refinery which has a daily output of 50,000 barrels producing a mix of diesel, kerosene, gasoline, furnace oil and naphtha is currently operating at very low capacity as one of its major sections is closed for repairs, he said adding that an essential spare part called ‘catalyst’ has to be imported from Italy at a cost of Rs.200 million to get the system running again. The CPC is waiting for Treasury approval to bring down this spare part, he said.
Sri Lanka consumes around 3.6 million metric tonnes of petroleum products each year, of which around 2 million MT are refined at Sapugaskanda. The country consumes around 30 million litres of gasoline, 130 million litres of diesel and 18 million litres of kerosene each month. But at the moment it has to import a large quantity of refined products to meet the country’s requirement due to low production capacity of the ageing refinery, compared to earlier imports crude oil and only a small quantity of refined oil, he said.
Without the option of increasing prices, the Treasury is absorbing the CPC losses like the fertilizer subsidy. Even after recently increasing the price of a litre of petrol by Rs. 10, the CPC is still losing Rs. 1.90 per litre of petrol, the Minister said. After increasing the price of a litre of diesel by Rs. 3, the CPC loss is Rs. 33 per litre of diesel.
Finance Ministry officials said if the price of a litre of kerosene is increased by Rs. 10, the CPC would have to incur a loss of Rs. 47 per litre of kerosene.
The CPC currently sells furnace oil to power sector projects at a subsidized rate of Rs. 40 per litre as against the actual cost of around Rs. 77 per litre, losing Rs. 37 per litre. All these losses are absorbed by the Treasury.
The Government is also losing Rs. 53 billion in revenue per year due to a waiver of Customs duty on petroleum products, the officials said.
Minister Premajayantha said the Sapugaskanda oil refinery upgrading project will be delayed due to technical reasons. Iran is to provide funds of around US$1 billion to expand and upgrade the Sapugaskanda oil refinery and the relevant agreement was signed in April 2008. Once completed, the refinery will be able to refine around 100,000 barrels of crude oil per day from the current 50,000 barrels per day, saving millions of dollars in foreign exchange spent on refined products, he added.
The CPC, already faced with a major financial crisis, is also spending US$ 2.2 million to upgrade Sapugaskanda – apart from Iran’s contribution.