CPC cannot provide subsidies forever - Minister Anura Yapa

By Manjula Fernando

Minister Anura Priyadharshana Yapa who has held the portfolios of Environment and Media previously was offered one of the most challenging ministries - the Petroleum Industries - in the recent Cabinet re-shuffle.

Often deemed as an unpopular Ministry which earns the wrath of the masses, straightforward decisions could sometimes be detrimental to the future of one’s political career. And on the other hand ‘popular decisions’ would mean further aggravation of the future of the already burdened Ceylon Petroleum Corporation (CPC).

Interviewed by the Sunday Observer Minister Yapa explained his vision for the future of the CPC.

Q: It's a well-known fact that the Petroleum Industries Ministry is not a popular portfolio in Sri Lanka. You have before you the mammoth task of salvaging a crisis ridden entity that would involve taking unpopular decisions. What are your comments?

A: Of course it is a very difficult sector. We have been hit by two sides. Our Refinery is used to treat Iranian crude but unfortunately because of the world Trade Embargo by the US, we are compelled to do without Iranian oil which is detrimental to the future.

We have to purchase a similar type of crude oil which is extremely rare. On the day I assumed duty I was told that we are getting some consignments from Oman.

Our refinery is very old, and we have been compelled to import refined oil from the world market, which is extremely expensive. We are aware of the situation, and what happened in the immediate past, for which the former Ministry Secretary and an officer have now been charged and a case is continuing in the Courts.

During the last five to ten years, our consumption has increased several fold. I have to decide what type of petroleum products the country must import, and whether they are price wise and quality wise comfortable with the local market.

The good news is that our refinery has begun operations. I would like to emphasise that this sector cannot run solely as a welfare service. We cannot continue to subsidise petroleum products forever. Besides petrol, subsidies for diesel and other fuel used for power generation by the CEB would have to be continued further.

This is one of the major reasons why the Petroleum Corporation has to bear losses.

I have not been able to speak to the Treasury and other officials yet, but certainly we will be meeting them shortly to decide on a future course for the CPC and discuss a viable plan of action to overcome the crisis situation.

Q: Are you not concerned that you run the risk of diminishing your popularity with this latest assignment?

A: I don't work to boost my popularity. I have always been straightforward. I come out with my frank opinion and say what I have to say. We are here not to become popular but to work towards a goal that will help the people I represent.

Raising this corporation from its current predicament is a herculean task, I am not worried about my popularity but I will do what I have to do. Because, at the end the people will realise that I have done a good job.

Q: Are you saying that you do not hesitate to take unpopular decisions?

A: No country maintains subsidies in the Petroleum sector any longer. I will however be mindful about the low income groups of the society. This sector needs to be given support continuously for some time. There can’t be abrupt changes. But cross boarder subsidies will be out. You cannot even think about it in a situation like ours especially when we have to deal with a highly volatile world market. We have a race with time.

Q: Will there be a price formula introduced to match price fluctuations in the world market?

A: What I said was a general statement, I did not mean that we are going to do away with the subsidies right away. Nowhere in the world, do they subsidise petroleum products. It is not like flour or rice. It is not a matter of one or two million rupees, the deficit could be as high as hundreds of millions. Everyone must understand that we cannot provide subsidies forever. We have long exceeded our limits and this is simply unbearable for the CPC and the country.

Q: Is there a scheduled time frame for the laying of the new oil pipeline? What will happen to the 400 odd families (squatters) living in and around the area?

A: We have not yet decided. The tender procedure has begun. I cannot off hand give you any detailed answers as to when it (laying of the new pipeline) will begin and when it will be completed.

They have more or less settled the issue of squatters. I understand that a corridor has been cleared and some encroachers have been evicted from the area.

It is now a matter of laying the new pipeline which will begin after the tender procedure is over. I cannot at this point give exact dates as to when the project will begin. Once the new line is laid we will abandon the old one.

Upgrading the refinery and the pipelines from Kolonnawa are part of the long term plans of the Ministry. If we can bring the capacity of our refinery to 100,000 barrels we need not import finished products from overseas. This will help ensure a stable future for CPC.

Q: What is your vision for the CPC, any specific measures that have been contemplated to salvage the institution?

A: I am concerned about the quality of the fuel we supply the local consumers. We will try to supply high quality fuel that is compatible with European standard. We will not compromise on the quality of products which we buy from the world market. It is a resolution I made the day I took over the Ministry.

The consumers will have the choice of selecting between high quality and premium quality diesel and petrol, and our target is to make available all these types throughout the country.

At least one such service station within a 25 kilometre radius will be selected and upgraded for the purpose. The first step will be, making available Super diesel and 95 Octane Petrol island-wide.

We have a large contingent of workers. Within the CPC the number is around 2,500 and in the storage terminals, another 3,500 employees work. I have focused on their personal welfare as well, which is a top priority. The Personal Managers have been entrusted the task of looking after the workers and getting a maximum output in turn.

Q: The CPC’s financial crisis is partly due to payment defaults by State institutions. Do you agree?

A: With regard to the financial sector, I hope to meet up with all the debtors. It is crucial that they meet our deadlines with regard to payments.

We need to have cash in hand and only then will we have the manoeuvrability.

I have also been advised that it is prudent for Sri Lanka to go for long term contracts with the suppliers. It is a lengthy process which involves calling for tenders and lab testing. But it has to be pushed through, we need to open up long-term contracts for instance, up to six months and look for new avenues that will secure us the best product at the best price.

Trincomalee is one of the strategic places where I am keen to exploit and begin business. We can off load shipped fuel without much difficulty and store it close to the shore. It will be one of my priority areas. We would also explore the possibility of importing high standard fuel for modern hi-tech vehicles.

Q: To ease off the CPC’s financial deficit the price of a litre of Furnace oil was to be increased by Rs. 25 effective this month. Has this been put on hold?

A: If we increase the furnace oil price which is a raw product for power generation, the CEB will be hit and they will have to raise electricity tariff. The Government is not ready to make that decision yet.

Next week we plan to meet the Ceylon Electricity Board (CEB) officials one on one over the issue. While being mindful of the interests of the consumers, we will discuss a way out and a possible compromise to address the crisis. Preparatory negotiations between officials are already taking place.

Q: What is your ministry's role in the on going oil exploration activities?

A:The Ministry has a role to play but overall the oil explorations are under the purview of the President's portfolio.

It has been established that Sri Lanka has natural gas deposits. If we can drill it out it will be a huge boost for the economy.

This is how countries like Malaysia has built up their countries. Norway, USA, the Scandinavian countries, part of Australia and even India are examples. India has no large deposits, but drilling is tipped to begin in mid 2013.

One fourth of our import bill accounts for crude oil and petrol. It is unbearable. The news of oil deposits is like a silver lining in a dark cloud.

Q: What else would you like to add?

A: I am aware that this is a very challenging job. Every year petroleum products in the world market soar. There was speculation that soon the market will die a natural death with the discovery of alternative energy sources. But in reality the demand for petroleum products keep increasing and with a fast depleting natural resource, the prices sky rocket.

Then comes the issue of fluctuations in the world market. We must have the capacity to forecast, identify and understand the fluctuations. We must go for long-term agreements with suppliers to enjoy the advantage of a stable price. With Iran being sidelined by trade sanctions, currently we buy crude from Oman. Sri Lanka has a concession to purchase Iranian crude, but we cannot find ships to bring their crude, we are unable to open Letters of Credit since dollar transactions have been barred and virtually the whole sector has been crippled.

My aim is to supply high quality fuel all the time. We are gearing for that target now, there will soon be a marked improvement in Sri Lanka’s petroleum sector. Already the Ministry has begun upgrading the petrol sheds/service stations on an initiative of the previous Minister.