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Blazing exposure of CPC’s multi-billion rupee losses
The Ceylon Petroleum Corporation (CPC) lost a staggering Rs. 3.2 billion in just six months due to bad procurement procedures and mismanagement, the Auditor General’s latest report shows. The other areas of mismanagement include failure to conduct timely and dependable laboratory tests, inability to meet challenges arising from market vagaries, overspending and delay in securing crude oil products, . These losses were incurred from January to June 2012 and this works out to Rs. 533 million a month. This situation impacted negatively on the corporation and the country’s economy, Auditor General H.A.S. Samaraweera says. The unsafe mixing of high and low octane petrol also contributed towards losses.
The Sunday Times obtained a copy of the Auditor General’s latest report on CPC financial statements for the year ending December 31, 2012. These were sent to the Auditor General in March 2014, well past the stipulated deadline. Mr. Samaraweera’s response is dated September this year. It provides insight into a litany of management bungling, inefficiencies and administrative decisions that have caused the CPC to record a total loss of more than Rs. 97 billion in just the year under review.
It is also revealed that massive losses incurred during the preceding four years had raised the CPC’s negative net income to Rs. 228.545 billion by the end of 2012. Payouts and expenses related to controversial hedging deals worsened its financial situation. “It is doubtful that the CPC can continue to be run continuously as a going concern without financial assistance from the Treasury or other financial institutions,” the report states.
In 2007, the CPC recorded a loss of Rs. 3,984 million. Just five years later, in 2012, the loss shot up to Rs. 97,308 million. Meanwhile, net assets which stood at a positive Rs. 13,568 million in 2007 dropped to a negative Rs. 228,545 million, a mere five years later. The CPC increased local retail prices of crude oil products in 2011-2012 to offset these financial difficulties but the strategy did not pay off, the Auditor General states. During that period, the corporation made losses against every crude oil product except 90 octane petrol and the Lanka auto diesel sold to the power generation sector.
The Auditor General’s report shows that, by the end of 2012, long-term debts owed to the CPC by various customers had reduced by around Rs. 18 billion (from Rs. 115 billion in 2011 to Rs. 97 billion the following year). Money is owed to the CPC by shareholders, the aviation and power generation sectors, public institutions, the agro chemicals industry, lubricants sector and others. Public sector institutions were the worst defaulters.
Some of this debt was recovered through the cashing of Government treasury bonds. While 28 customers had owed the CPC more than Rs. 20 million, legal action was taken against just 13 of them to recover Rs. 6 million. The rest were not penalised. The Auditor General reveals that one customer owed the CPC Rs. 322,670 over a period of five years. The corporation wrote off Rs. 134,165 of this and continued to supply crude oil products to him regardless of the outstanding debt.
The report says the CPC in some instances provided credit over and above stipulated limits. It also gave some customers credit without bank guarantees. The corporation has failed to implement management decisions that a penal interest rate of 24 per cent be levied on any outstanding debts owed to the CPC. The CPC introduced a system of payment through cheques on delivery (COD) and on hard cash. Some cheques bounced. In 2012 alone, there were 1,579 instances of bounced cheques to the value of Rs. 1,388,713,962. In most instances, the CPC continued to provide services on hard cash basis with no follow-up on the bounced cheques. This led to customers taking advantage of the situation.
An audit conducted during the period under review revealed Rs. 147.7 million outstanding in unrealised cheques from 11 customers in 213 instances. Meanwhile, a circular dated June 2003 allows the CPC to pay profit bonuses to its employees. The management authorised annual profit bonuses to employees despite the corporation continuously sustaining losses from 2008 to 2012.
The Auditor General observes that the CPC’s board of management did not have single member drawn from the petroleum industry. Government regulations prevent any employee from holding acting positions for more than three months. However, 16 employees worked on an acting basis for between two months to two years during the period under review. The CPC is sustaining continuous financial losses and capital leaks due to inefficient refinery management and maintenance leading to frequent disruptions, the report continues. Also contributing to the corporation’s net loss is supply of fuel to SriLankan Airlines and Mihin Lanka at lower-than-contracted prices. It also provided furnace oil to the CEB at concessionary rates. In 2011-2012, the CPC incurred a loss of Rs. 1,126.4 million in the sale of aviation fuel to the two State carriers.
In 2012, the CPC increased the amount of loans taken to fund its operations (including procurement and refinery activities). The corporation’s aim is to refine one-thirds of imported crude at its Sapugaskanda facility. According to the refined oil products ledger, however, the quantity of crude oil imported by the CPC had reduced to 16.1 percent when compared with the previous year. This indicates that the corporation is importing more refined products rather than producing them at Sapugaskanda. The CPC management has failed to implement the proposed Sapugaskanda Oil Refinery Expansion and Modernisation Project.
The corporation has increased its bank borrowings in 2012 to pay off its crude oil bills, the Auditor General states. He also reveals that there was an unusual rise — 20 per cent increase against the previous year — in the CPC’s financial expenses and annual operational losses. Foreign borrowings also exceeded limits set by the Central Bank.