Shortsighted decisions led to CPC crisis, say TUs

by Gamini Warushamana

The Ceylon Petroleum Corporation (CPC) is in a serious crisis due to the shortsighted decisions of the government in the privatisation of the CPC shares and unfair competition practices by the Lanka India Oil Company (LIOC), CPC trade unions said.

Now the duopoly petroleum market of the country is competing price-wise and due to this competition the CPC is in a disadvantageous position due to various concessions given to the LIOC, constraints and huge government debt and a large amount of unpaid government subsidies to CPC, said a spokesman for the CPC Common Service Union D.J. Rajakaruna addressing a seminar in Colombo last week.

LIOC reduced its petrol price by Rs. 3 a litre and diesel by Rs. 5 per litre from September 6. It increased petrol and diesel prices on September 1 by Rs. 7 per litre. Market analysts said that LIOC was expecting the CPC to follow and raise its prices close to the LIOC price.

However, the CPC did not increase the prices to the LIOC level and as a result CPC petrol and diesel prices were Rs. 6 and Rs. 4 per litre below the LIOC prices. After the new LIOC price revision, it sells petrol at Rs. 102 per litre, diesel at Rs. 68 per litre and the prices of the CPC are Rs. 101 and Rs. 67 per litre. Rajakaruna said that the legal position of the market competition is not clear.

The CPC is entitled to receive the subsidy but does not get it and has no hopes of receiving it as the treasury owes billions of rupees to the CPC on account of previous subsidies. It was reported that LIOC also claims that there is no level playing field in the market.

However, in the present scenario the CPC will not be able to sustain this price competition and it is on the brink of a serious crisis. The crisis loomed with the LIOC increasing its market share by acquiring private filling stations. When the government sold one-third of the shares of the CPC in 2003 there were 300 CPC filling stations across the country and LIOC secured 100.

Initially LIOC had a 17% market share and according to last year's annual report the LIOC now has a 28.9% market share. After the government allowed the LIOC to acquire private filling stations its market share increased.

Today the CPC oil refinery at Sapugaskanda produces 60% of the petrol and diesel requirements of the country.

Therefore, the CPC needs a market share of over 60 per cent to continue the refining process in the country and it cannot reduce its refining capacity.

If the CPC market share falls below 65% there would be excess petrol and diesel with the CPC but the company does not have adequate storage facilities. Today the refinery accounts for a Rs. 6 billion profit of the total Rs. 7 billion CPC profit.

The trade unions' point of view is that if the CPC market share falls below 65% it will have to stop refining and this would be the last straw for the CPC. This would create several issues on petroleum byproducts such as lubricant and agro chemicals industries and result in price increases of those products, Rajakaruna said.

The CPC is not in a position to compete with IOC, the oil giant with its capacity, advantage of economies of scale as well as various grants given by the government which were not given to the CPC. LIOC gets BOI concessions for machines and equipment imported for renovation of filling stations but CPC imports are subject to tax. This helps LIOC to acquire private filling stations.

In a competitive environment LIOC can sell oil at lower prices than the CPC by using IOC's large refining capacity.