Loss-making CPC profits from lower oil prices
Loss-making Ceylon Petroleum Corporation (CPC) has been turned into a profit-making entity in 2020 after several years following a drastic fall in world crude oil prices during the COVID-19 crisis. However local fuel prices have remained unchanged.
Global oil prices have been falling amidst the coronavirus pandemic and the Singapore Platts price of a barrel of petrol and a barrel of diesel began its downfall from January 2020 up to the fourth quarter, and it has dropped below US$20 for the first time in decades from the normal price of $60.
Due to this decline in prices and government’s initial tax reduction on fuel imports, the CPC recorded a net profit of Rs. 830 million during the first three quarters in 2020 compared to a loss of Rs. 9 billion during the same period in 2019, Finance Ministry records revealed.
According to ministry’s provisional data, the CPC has been able to achieve a considerable net profit of Rs. 1.18 billion last year although it had to incur a loss Rs. 357 million during the fourth quarter of 2020 due to fuel price hike and rupee depreciations.
The CPC has managed to reduce its losses significantly to Rs.4.4 billion in 2020 from Rs.11.8 billion in 2019, officials said.
In other data, the total accumulated debt of the CPC to state-run People’s Bank and Bank of Ceylon had reached Rs.600 billion at present from Rs. 566 billion in December 2019.
CPC chairman Sumith Wijesinghe was unavailable for comment as he was busy attending important meetings, his personnel secretary said.
During the 2020 lockdown period, the daily demand of petrol and diesel dropped by 80-90 per cent and the CPC’s daily supply dropped to 150 metric tonnes of petrol from 2,300 metric tonnes while the diesel supply came down to 500 metric tonnes from 4,300 metric tonnes in the second quarter. This has resulted in the increase of petroleum stocks at Muthurajawela and Kolonnawa oil refineries.
However, the government has taken a decision that they would not reduce the fuel prices and instead it has imposed an additional surcharge and duty hike on fuel imports to set up a Rs. 200 billion fuel price stability fund.
The fund is intended to be used to repay the outstanding debt of CPC and the Ceylon Electricity Board (CEB), official data showed.
This additional duty and surcharge had been removed when global oil prices were seen increasing considerably due to the escalated tensions between the US and Iran late last year and early this year, a senior Finance Ministry official told the Business Times. He noted that the Treasury has collected around Rs. 50-60 billion, which is lower than the initial target of collecting Rs. 200 billion for the fund within a period of six months.
The fund is now fully exhausted as the Treasury had to repay some fuel dues to the Central Bank and lend the balance money to the CEB to settle their outstanding payments for the CPC, he added.
Previous governments were used to settle CPC losses through dollar borrowings but in 2018 it borrowed dollars despite having rupee deposits from a price formula in a doubtful manner, he revealed.