Urgent need to make CPC work efficiently
The Ceylon Petroleum Corporation (CPC) was created by an Act of parliament in1961 so that large profits made by the foreign owned petroleum companies at the time and valuable foreign exchange savings achieved through our own refinery productions can remain in the country.
But have we been able to achieve these objectives?
It is sad to note that in the recent past due to much politicisation, the CPC has gone from bad to worse situations resulting in the infamous hedging deals incurring colossal losses running into billions which the corporation is still repaying the banks!
This was followed by importing inferior and contaminated petrol on several occasions, entering into loss-making contracts while unplanned unethical purchases have led to the institution coming under serious criticism by the public.
If the CPC is de-politicised and given some freedom to operate subject to basic public responsibility and control that can be monitored through annual reviews, budgets and timely reporting to Parliamentary committees, etc, it can be made to operate efficiently like a semi-private organisation.
Among the CPC’s main problems are:
a) Highly volatile nature of oil price fluctuations in the world market which needs constant study and research.
The CPC has to do a ‘balancing act’ on prices when it has to please the public as well as the state. This is why it has to profit from petrol to subsidise diesel and kerosene. Today oil prices have dropped considerably, compared to much earlier times but constant changes in the world market have to be watched carefully and selling prices of all types of fuel has to be adjusted.
The CPC should seriously review its pricing policy and fix prices on a reasonable formula so that any of the benefits can be passed to consumers while retaining a profit.
b) Study new and innovative ways of handling oil purchases.
The CPC should urgently set up an R&D unit in order to keep track of world prices, price fluctuation trends and its behaviour. It is essential to do ‘Risk analysis’ in forward planning of purchases, hedging arrangements, conduct thorough studies on purchase options available etc
c) Minimise leakage, wastage when transporting and distributing oil and have efficient storage systems in operation all the time.
It is constantly reported that a lot of wastage takes place at points of loading and loading of cargoes and also due to pipeline leakages.
d) Why not CPC think seriously of optimum usage of storage terminals so that at times when oil prices drop in international market, more purchases and storage can be organised for the future?
The CPC should be allowed to make use of any unutilised storage at the China Bay Tank farm in Trincomalee. These tanks were leased out to the Indian Oil Co amid protests but it is time to renegotiate and at least keep a minimum number for our use for any emergency. We should make use of at least 50 per cent of available storage tanks there for urgent storage.
Such examples are available from other countries and a recent example was when China’s top oil producer China National Petroleum Corporation started to fill more tanks at its largest oil reserve to store 50 million barrels of crude oil when prices were tumbling. The additional storage aimed to build a reserve of 150 million barrels by end of the year in 2010.
e) The CPC Refinery commissioned in 1965 needs immediate attention for revamping and expansion as we need to have a refinery functioning at maximum capacity for maximum results. The present capacity needs to be doubled or trebled to achieve good savings on refining crude oil.
f) Another very important matter is the replacement and provision of additional pipelines required for the transportation of oil from the port to the Kolonnawa complex. Though successive governments tried to get rid of the illegal occupants living in and around these pipelines, their vote base was an impediment as political interference stopped all such attempts.
g) The CPC like any other state corporation has its own misdeeds/mistakes some of which may end up as frauds or corrupt practices, for which government must take the blame for not appointing efficient officials at the helm.
It is a matter of grave concern to find that in a recent KPMG survey it is reported that the number of fraudulent activities in our country has increased by 83 per cent over the last three years.
i) The CPC, like any organization answerable to the public, must be bound by a code of ethics. Strict financial discipline has to be maintained in all its activities.
In 2000, the CPC formed its own Audit and Management Committee and it was functioning well. The committee met before every board meeting in order to keep the Board advised on key issues. I chaired that committee at the time and a Treasury representative was made a working member. Unfortunately it didn’t last long again due to political changes.
The purpose of this short article is to highlight the fact that the CPC established 50 years ago has to be protected and nurtured to face challenges in the future and contribute to our economy.