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Govt loes Ru 53b revenue,by waiving duty:

Oil prices rise due to ME unrest -Susil Premajayantha

Petroleum Industries Minister Susil Premajayantha said despite the revision of fuel prices, the Ceylon Petroleum Corporation (CPC) has to incur a loss of Rs. 1.90 per litre of petrol, Rs. 33 per litre of diesel and Rs.47 per litre of kerosene. In addition, the CPC has to bear a loss of Rs. 37 per litre of furnace oil supplied to the CEB. The Minister in an interview with the Sunday Observer said it is very difficult for the Treasury to cover up these losses.

The Minister said the Government has waived off Customs duty imposed on petrol and diesel. As a result the Government is losing Rs. 53 billion revenue per year. If we strike oil, we would be able to reduce our oil prices within the next three to five years.

Q: Despite promises not to raise fuel and gas prices, the Government raised prices last week. What factors led to this increase? Will there be another increase soon?

A: Actually we didn't promise that we are not going to increase fuel prices. We can't give that guarantee because it is beyond our control.

It all depends on the demand and supply of oil in the international market. There is an upward trend from last October. From January, oil producing and oil trading countries in the Middle East are facing new challenges due to political uprising.

As a result, there is political unrest in these countries. This has directly affected the supply of oil as well. Due to this the supply of oil has dwindled. Therefore oil prices in the international market rose drastically during the last two months.

Q: Despite the fuel price hike, the Treasury has to incur a huge loss. How can the Ministry cover up this huge loss?

A: It is very difficult to cover up this loss. Ultimately the Treasury has to absorb it like the fertilizer subsidy. Even after increasing the price of a litre of petrol by Rs. 10, still the Ceylon Petroleum Corporation (CPC) is losing Rs. 1.90 per litre of petrol.

After increasing the price of a litre of diesel by Rs. 3, the CPC is incurring a Rs. 33 loss per litre of diesel. If the price of a litre of kerosene is increased by Rs. 10, the CPC has to incur a Rs. 47 loss per litre of kerosene. In addition, a litre of furnace oil is supplied by the CPC to power sector projects at Rs. 40. But its actual cost is somewhere around Rs. 77 per litre. So the CPC is losing Rs. 37 per litre of furnace oil supplied to the power sector.

As a result of this, consumers of the power sector are getting the present rates. Otherwise definitely there will be an increase of electricity rates. Ultimately all these losses are passed on to the Treasury. Apart from the Customs duty imposed by the Treasury on petrol and diesel, Rs. 10 was reduced on January 11 and another Rs. 5 was reduced on April 02.

At present there is no Customs duty imposed on petrol or diesel. As a result, the Government is losing Rs. 53 billion revenue per year due to waiving off Customs duty imposed on petroleum products.

Q: The Treasury has to bear a subsidy of Rs. 686 million to the CEB and Rs. 291 million to Kerawalapitiya on a monthly basis for supplying petroleum products at a price less than the cost of importation to generate electricity. Is there any mechanism to control this situation?

A: The only mechanism is to increase prices. If that is done, production costs will go up. The only alternative is, Kerawalapitiya should be converted into LNG (Liquefied Natural Gas) as soon as possible. At the moment, we have appointed a Task Force and they are in the process of preparing a report. We are expecting that report. After the report is submitted, the Cabinet will take a policy decision on it.

There are many thermal power plants which can be converted into LNG. Despite political unrest in the Middle East, LNG prices in the international market have not gone up drastically compared to other petroleum products. Therefore the best thing is to convert our thermal power plants to LNG within the next couple of years. Then we can balance one third of the fuel power supply from coal power, one third by hydro and another one third from LNG. If we can do this, we would be able to balance the current electricity bill as far as consumers are concerned. Then we need not supply fuel oil to the power sector.

We can export our production from the refinery to the international market and earn foreign exchange. It will take at least three to five years to come to that stage.

Q:If World Market prices come down, will fuel prices be lowered accordingly?

A: Definitely.

Q: Is there a way where you could keep at least kerosene prices at an affordable rate because it is the poor man's fuel?

A: If you get the statistics, you will find that it is not only the poor people who use kerosene. The Ceylon Electricity Board has already supplied more than 85 percent of power to the national grid. This power supply would reach 90 or 95 percent within the next two years. At present kerosene is used for some industries. But they earn and they are in a position to pay. At present a Rs. 47 subsidy has been given for a litre of kerosene. Compared to this Rs. 47 loss per litre of kerosene, the Rs.10 increase of a litre of kerosene is nothing. What we want to do is to minimise the losses.

Q: What is the progress of oil exploration off the coast of Sri Lanka?

A: With regard to oil exploration, Cairn Company Ltd has decided to start test drilling in the Mannar basin in August this year.

Q: If we strike oil, can the prices be reduced?

A: Even if strike oil, it will take another three to four years to take out the oil.

Then of course we will have an agreement and we get the royalty. We have a plan to expand our refinery. If we do that, we would be able to reduce oil prices within the next three to five years. Then we will have our own crude oil or gas. The power sector will also benefit and the entire country will be benefited as the final outcome.

Q: Recently there was a controversy over the supply of fuel at subsidised rates to the CEB. Can you explain this situation?

A: There is a verbal agreement between the Treasury and the CEB regarding this. At present the CPC supplies a litre of furnace oil to the CEB at Rs.40. But the cost of a litre of furnace oil is Rs.77.80. Despite this situation the CPC still supplies furnace oil to the CEB. In addition to this, we have to import low sulphur furnace for the Yugadanavi power plant at Kerawalapitiya. When we import low sulphur furnace oil, we have to open a bank Letter of Credit. If they don't pay their dues on time, we have to borrow money from the bank to import.

If we borrow money from the bank and open a LC to import low furnace oil for this particular power plant, we have to pay interest.

If we add the interest to the cost per litre, the cost will go up. Ultimately the CPC becomes the loser. Once they produce electricity and give it to the CEB, they are paid. So it is their duty to pay our dues as well.

Due to the result of revealing these facts by the media, they have now started paying their dues and I hope they will continue doing that.

Q: How many Government institutions owe money to the CPC for fuel purchases? Are they in the process of clearing those debts?

A: Yes of course. Three Armed Forces, Police, Sri Lanka Transport Board, Mihin Lanka and SriLankan Airlines, all these Government corporations or institutions using oil have to pay their dues to CPC. From time to time, we write and inform them and we are also having discussions with the Treasury to recover all these dues.

Q: What is the progress of plans to double the capacity at our refineries?

A: At the outset, our refinery can produce only 20 percent of diesel, 20 percent of petrol and 13 percent furnace oil. This is a 45-year- old refinery. After President Mahinda Rajapaksa had discussions with the Iranian President three years ago, the Iranian Government pledged to provide funding facilities for the expansion and refurbish the existing refinery. It took two years to prepare the feasibility report and it was submitted to the Ministry recently. The estimated cost of this project is US$ 2.1 billion. But there is a shortfall of US$ 600 million which is a huge amount. We are negotiating through our diplomatic channels as to how we are going to bridge this gap. There are many parties who have shown their interest to come here and invest. First of all priority will be given to the Iranian project. After negotiations, we would see the possibility of going for other alternatives as well. Within the next two to three years, we are going to take a decision and go ahead with the plan. But whatever said and done, we want to start this expansion project of the refinery. It will take at least three to four years. If we find gas or oil from our shores and we have our own refinery at that time, then we need not worry about international oil prices.

Q: Is there any truth in the reports that the CPC is being privatized?

A: There is no such move. The CPC has been established by an act of Parliament. Therefore there is no way of privatizing the CPC. During the UNP regime, the CPC was split into three. One third of shares was sold to the Indian Oil Company. They had also made arrangements to sell another one third of shares but the President stopped that. As a result, the CPC owns two third of the fuel market and filling stations, while the Lanka Indian Oil Company is handling only one third.

Q: What are the plans to improve filling stations and fuel distribution system in the North and East?

A: The fuel distribution system is improving now. The new filling stations will be established in the Northern and Eastern provinces. Some of the filling stations have been closed by owners or dealers due to the situation that prevailed in the Northern and Eastern provinces at that time. After terrorism was defeated, new filling stations are being established in the Northern and Eastern provinces. Nearly 70 percent of fuel distribution to the Northern and Eastern provinces is done by the Railways while the balance is transported via bowsers. We started the distribution of oil to the North from Muthurajawela from January this year. Therefore there is no congestion at Kolonnawa now. About 30 to 35 percent of fuel is distributed from Muthurajawela while the balance is distributed from Kolonnawa. We have improved the distribution of oil and set up new filling stations in the Northern and Eastern provinces to cater to the needs of consumers.

Q: The Opposition made a huge noise over fuel prices and the cost of living during the local government polls, yet the Government recorded a massive victory. What were the reasons for this victory?

A: I think those are all slogans. After suffering 30 years of terrorist activities, the people have realised that peace is the most essential thing for this country. Normally the prices of food items like vegetables go down during the season and go up during off season. The Government is going to introduce new packing systems for vegetables especially during the off seasons. With the use of new technology and improvement in production, the answer is there. That is what the Government is doing at the moment. The main slogan of the UNP and the JVP is the cost of living and oil prices. But still the people can't trust the Opposition. They trust the President. That is why the people voted for the UPFA and gave a resounding mandate to the Government. The people know very well that price fluctuations are natural. At present, oil prices have gone up due to political unrest in the Middle East. If the issue is addressed and the problem is settled, automatically oil prices will come down. At that time, we would definitely consider a price revision.

Q: How is the campaign progressing for the rest of the local government polls, which could be held after Vesak probably?

A: It all depends on the judgements which are scheduled to be delivered on May 05. Once the judgement is delivered, the Election Commissioner has to decide and fix dates for elections. At that time, the UPFA will restart its campaign. Even at the moment, our candidates at grass roots level will meet the people by conducting their campaign in a small manner.

Q: What led the Government to postpone the debates on Local Authorities (Special Provisions) Bill and Local Authorities (Amendment) Bill? The Opposition alleges that some of the proposals put forward by them have not been included into these amendments?

A: The main Opposition party, The UNP and the TNA suggested that this debate should be postponed.

At the committee stage, they want to amend certain sections and we also agreed to discuss that.

Therefore we postponed the debate and allowed the Opposition to participate in this process. It will be taken up on an agreed day. At the committee stage, the Opposition can express their views and amend the particular sections.

 

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