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Lanka’s petroleum storage and pipeline facilities need urgent upgrading, warns national audit
A national audit has warned of dire outcomes if Sri Lanka’s petroleum storage and pipeline facilities are not urgently upgraded to meet demand growth.
At several points during its inquiry, diesel, petrol, aviation fuel and kerosene stocks had fallen to a mere 13, eight and six days (respectively) of the country’s total requirement by the time a tanker arrived and started unloading.
If capacity remains unchanged, the quantity of diesel, petrol, aviation fuel and kerosene in stock could drop to nine days, six days and five days (respectively) of the requirement by 2026 as per projected fuel demand, says the Auditor General’s special report on petroleum storage and distribution presented recently to parliament.
There is also the high risk of disruption to existing fuel supply in the event of a fuel tanker being delayed beyond the said number of days. The report does not, however, look at petroleum products imported through the Trincomalee Port and distributed by the Lanka Indian Oil Company (LIOC).
A towering 70 percent of imported, refined products are unloaded at Colombo port and sent to the Kolonnawa terminal through pipelines older than 48 to 75 years. Two are inoperative. The others leak frequently—six instances between 2018 and last year alone.
Unloading of fuel is through an “old, small pipe of ten inches” that also leaks frequently. There is no interchange pipe system between terminals.
All this fuel is wasted amidst crude oil and refined petroleum products making up 18 percent of Sri Lanka’s total import bill—Rs 657bn—last year, according to the Central Bank Annual Report.
The Trincomalee World War II oil tank complex has remained idle or underused for nine decades when it could easily have been used to refine fuel for the country, the Auditor General says. It has 99 tanks with a capacity of 12,500 cubic meters each and only 14 are being used by LIOC since 2003. There is an oil tank complex in close proximity to the Hambantota harbor but “even those tanks are not made use of for storing oil”.
There are 14 bulk depots countrywide. Fuel is distributed from main terminals to bulk depots and thereafter to fuel stations.
“The buffer stock or the capacity of fuel that is present in terminals and depots for using in an emergency situation is of utmost importance,” the audit report states. “However, a distinguishable buffer stock is not maintained in the country at present.”
When an oil tanker with substandard petrol as rejected in 2017, fuel supply in the country was crippled. This could happen again as there is insufficient storage capacity.
A Cabinet decision dated March 2012 states that CPC must attempt to enter into agreements to buy petroleum productions over a longer period on the basis of extended credit facilities and not the spot tender method used till then. However, the CPC had imported petroleum on spot instead of term tenders over the past several years.
This is also because there wasn’t enough storage capacity and other infrastructure to enter into term tenders. The same situation will continue, depriving the CPC of entering into contracts with more favourable conditions than spot tenders.
Around 20 percent of the country’s fuel supply is met by a CPC-owned refinery which was “very old and lacked modern technology”. It remained shut for 56 days in two instances from 2018 till the date of the report. And when it was inoperative for short or long durations (for maintenance or other unavoidable reasons), the shortfall was met through finished imports.
The Kolonnawa storage terminal holds 43.27 per cent of white oil used in the country. It is moved from Colombo harbor to Kolonnawa terminal through single pipeline. Any breakdown poses the risk of severe fuel shortage. The pipeline is over 75-years-old with a diameter of 10 inches.
Minimum pressure must therefore be maintained when unloading fuel. The maximum unloading capacity at present is 220 metric tons per hour—it takes eight days to unload 40,000 metric tons. Even more time is spent when several products are imported at once.
Separately, the audit has recorded many instances of the CPC paying heavy demurrages for delayed unloading of fuel from ships caused by “blockages in the pipeline and inefficiencies in the storage system”. In the last five years, a sum of Rs 499mn was paid.