Long term fuel conservation vital for economic growth - Jaliya Medagama

by Lalin Fernandopulle

The lack of a sustainable energy policy, poor macro-economic planning and financial mismanagement have resulted in the Ceylon Petroleum Corporation (CPC) incurring massive losses annually, said former CPC Chairman Jaliya Medagama.

He said stakeholders should consider a viable alternative to meet the growing energy requirement and avert a crisis rather than depending on imports which is a severe drain on the country's economy.

The import of petroleum products alone accounts for 25.2 percent of the country's overall imports. Foreign remittances from Middle East migrant workers was Rs. 200 billion in 2006 whereas the country's expenditure on importing petroleum products was Rs. 212 billion during the same year.

The expenditure on the fuel trade deficit widened in 2006 which reflected a faster pace of imports over exports. The trade deficit widened to US$ 3,370 million which is equivalent to 12.5 percent of the country's GDP in 2006.

"The scarcity of resources and the geo-political situation of fuel producing countries has severely hit the supply of crude oil and refined products in the world," he said. The demand for energy from industrialised countries is growing and with the rapid development in India and China fuel consumption has increased considerably. The refinery capacity in the world is restricted up to 2012.

Medagama said the refinery capacity has to be expanded and functioned in a profitable way to maximise refinery margins. Steps should be taken to enhance the current refinery capacity to around 50,000 barrels per day.

"There needs to be additional refineries to double the capacity which will help to reduce fuel prices and save foreign exchange. The present refineries were constructed in 1969 and they need to be refurbished", he said.

The Sapugaskanda oil refinery has to consider accommodating heavy crude oil. The CPC should adopt better financial management practices and not depend entirely on state banks for funds. The CPC should negotiate for better terms from private banks.

He said there should be a fuel price mechanism where luxury vehicles will not be given the same subsidy as other vehicles. The government should not subsidise fuel for people who can afford to purchase vehicles above Rs. 10 million.

"Politicians have been taking people on a roller coaster ride quoting world fuel prices as the cause for the increase in the prices of local commodities," Medagama said.

Crude oil prices in July this year were low compared to last year. A barrel of crude oil in July this year was US$ 69.82 whereas last year it was US$ 73.

Petrol prices had a marginal increase this year compared to last year. A barrel of petrol in July 2006 was US $ 82 and in July this year it was US$ 84.

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