Business Times

Move forward with 2001/2002 petrol reforms, open up imports

The 12th, and most recent, in a series of "economic alert" type reports by local non governmental organisation Pathfinder Foundation seems to suggest that excessive Sri Lankan government involvement in "monopolising petroleum imports to Sri Lanka" has resulted in even commonly used, international practices such as hedging becoming highly politicised, with the local government taking on responsibilities and blame beyond its scope.

Instead, the report indicates, the "way forward is to open up petroleum imports, distribution and retailing to other private sector enterprises in competition with the [Ceylon Petroleum Corporation (CPC)] or other government or semi – government institutions willing to enter into the business. The current downstream petroleum sector legislation provides for entertaining one or more parties entering into the field under similar conditions that were applicable to the Indian Oil Corporation (IOC)."

Further, Pathfinder also notes that the "first round of petroleum sector reforms that were undertaken during the 2001/2002 period included unbundling of the CPC into storage and distribution/retailing units. In the process, the IOC became an independent operator distributing and retailing petroleum. There seems to be a strong case for the government to proceed- with the next round of reforms whereby new entrant/s will be entertained. Furthermore, as envisaged in the current legislation, the petroleum regulatory function should be assigned to the Public Utility Commission (PUC). The PUC was established with the objective of introducing an independent regulator for electricity, petroleum, potable water resources and other infrastructure services."

Meanwhile, the report also states; "After the restructuring/reorganisation of CPC it is advisable to list its shares in the Colombo Stock Market, preceded by allocation of a substantial number of shares among the workers and retailers who have made a coniderable contribution to the business."

At the same time, the pertinent line ministry, the Ministry for Power and Energy, was advised to become, at least in the case of petroleum, "an independent watchdog protecting the consumer interest and creating an environment conducive for further investment in the sector."

As such, signalling the possible shifting of its focus to maintaining strategic petroleum reserves, an area thus far "never discussed in local policy circles." Or even, developing a "well-targeted fuel subsidy or an income transfer scheme." The latter, the report says, will result in the CPC and the IOC not being compelled to incur losses for which they bear no responsibility. For example, "[in] the case of CPC, it loses billions of rupees through subsidising the thermal electricity generation by another government-owned loss-making enterprise, the Ceylon Electricity Board (CEB)."

The report also states: "In an environment where profit-seeking public and private enterprises are in competition, imports (refined or crude petroleum) are likely to be based purely on price and quality considerations. In addition to these market-based compulsions, the PUC, as well as the line Ministry can also ensure that the players are not colluding or under/over invoicing so that consumers are further protected.

If the petroleum sector is made more efficient through greater competition, it will benefit all sectors of the economy through its impact on the costs of energy and transport. The proposed reforms are also likely to trigger much-needed improvements in other institutions, particularly the CEB." (JH)s

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