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SriLankan, Petroleum Corp. indulge in blame game for their losses
SriLankan Airlines and the Ceylon Petroleum Corporation (CPC), two of the State’s largest loss-making ventures, have blamed each other for their financial woes in official documents seen by the Sunday Times.
The provision of fuel to SriLankan and Mihin Lanka at “extraordinarily concessionary rates” seriously eroded the finances of the CPC in 2011-2012, a new report on the Corporation by the Auditor General H.A.S Samaraweera states. But the annual reports of SriLankan Airlines for the corresponding periods claim that one of the main reasons for its continuing losses is soaring fuel prices.
Senior aviation authorities said even they cannot explain this discrepancy. “It is a puzzle to us,” one admitted, requesting anonymity. “CPC officials have repeatedly said SriLankan owes big amounts to them for fuel that they are supplying at very low rates. But when they are not in the presence of CPC representatives, SriLankan blames its losses on high fuel prices.”
Meanwhile, SriLankan Airlines has now negotiated with CPC to buy fuel even more cheaply. These new prices, which are reflective of the current slide in international rates, came into effect in November 2014. It was not immediately clear how this facility would affect the Corporation’s finances.
A senior SriLankan Airlines source claimed it was “not true to say SriLankan is getting fuel at especially low prices”. “In this region, the only other country that sells such expensive fuel is Maldives,” he said. “SriLankan and Mihin, as Government airlines based in Colombo, get 60 percent of our fuel locally. We get a price advantage only when our aircraft go out.”
The Sunday Times obtained a copy of the Auditor General’s newest 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 submission deadline.
Mr. Samaraweera’s response is dated September last 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.
This report reveals that prices granted to SriLankan and Mihin were much lower than those granted to other contract customers, the Auditor General observes. As a result, the CPC made losses of Rs. 456.6 million (2012) and Rs. 669.8 million (2011) on fuel.
More worryingly, the outstanding dues of the two companies to CPC ballooned during the same period. “Despite these institutions being given concessionary rates, the situation with settling the outstanding fuel bill was very weak,” the Auditor General observes. “Because of this, the outstanding balance exceeded approved credit limits.”
At the end of 2012, SriLankan Airlines owed the CPC more than Rs. 25 billion. This was an increase of more than Rs. 13 billion when compared with the previous year. By contrast, the outstanding fuel bill was only Rs. 541 million in 2010. Mihin Lanka’s dues to CPC were more than Rs. 3 billion in 2012. It was more than Rs. 1 billion in 2011 and Rs. 361 million in 2010.
The SriLankan source earlier quoted claimed the company settled its entire fuel bill in April 2014 by cashing a Government bond. “We paid everything,” he said, speaking on condition of anonymity. (The company’s 2013-2014 annual report says SriLankan made a Rs. 2 billion loss by selling this bond before its maturity date).
In a series of annual reports, SriLankan Airlines maintains that the cost of fuel is primarily why profitability is low. “The cost of fuel is the main cause of reduced profitability,” said the company’s 2010-2011 report. “The average oil price for 2011 is now expected to be US$ 110 per barrel (Brent), a 15% increase over the previous forecast of US$ 96 per barrel.”
The 2012-2013 report says, “Jet fuel accounted for 45% of our operating expenditure last year, and revenue has not kept pace with the rise in fuel costs.”
Its latest report for 2013-2014 says, “The fact of the matter is that during the past years fuel prices have driven our costs up. All of these costs could not be passed on to the customer. Therefore revenue had not been able to keep up with escalating costs, leading to our losses.”
“The way I see it, SriLankan Airlines is not cost heavy in any region other than fuel acquisition,” Kapila Chandrasena, the company’s Chief Executive Officer, says in the report. The cost of aviation fuel “continues to be a significant factor impacting airline profitability” it is observed elsewhere.