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CPC to buy crude from Cypriot firm on unsolicited tender
View(s):Cabinet has approved the procurement of 450,000 barrels of Omani light crude oil for the Sapugaskanda oil refinery from a Cypriot commodity trading firm on an unsolicited tender because the company had offered the dollar-strapped Ceylon Petroleum Corporation (CPC) six-months of credit.
The uninvited proposal came from the Terra Navis group in Cyprus, said Energy Minister Udaya Gammanpila. The tender was awarded on a trial basis. The consignment, for which an arrival date has not yet been set, will cost US$ 76 per barrel. The company was chosen from among many such unsolicited proposals currently being floated to the Government, he revealed.
In the recent past, the CPC had ordered crude from long-term suppliers who dispatched the shipments to Sri Lanka on the assurance that the money would be settled on time.
But when the foreign exchange shortage worsened, the vessels had to wait in the high seas for several days—the longest having been a period of 11 days.
As a result of this and related issues, CPC suppliers started asking for advance payments, Minister Gammanpila said. The monthly fuel bill was between US$ 400mn and 500mn. “This is almost two-thirds of our export proceeds of US$ 1000mn, of which only around US$ 750mn come into the country,” he said. “When we have to pay US$ 500mn out of that in the form of advanced payments, the forex crisis becomes further deepened.”
Sri Lanka’s efforts to secure credit line for fuel from several other countries did not bear fruit. Only India came forward with US$500mn which suffices for a month. Terra Navis submitted its proposal to the CPC, the Minister said, insisting that he did not know who the local agent was. It was evaluated by a Cabinet appointed standing procurement committee which is headed by the Secretary to the Ministry of Power.
“Although it is an unsolicited proposal, the terms were better, and the prices are good,” the Minister maintained. “They have offered us crude that has not been used by us which has a high yield of furnace oil. Usually, our furnace oil market is around 400-500MT per month and we export the rest. But now, till May, which is dry season, we have to supply furnace oil to the power sector. So crude oil with high yield of furnace oil is worth considering because of the present context of high demand from the power sector.”
While the cost is US$76 per barrel, it has a yield—various products like diesel, petrol, aviation fuel, furnace oil, and petrol—of around US$80 per barrel, the Minister claimed. That is a difference of four dollars.
“However, even if the yield is lower, we don’t have an alternative,” he pointed out. “Nobody supplies us. In the recent past we had to close down the refinery twice. The purchase of crude is most difficult because we need around US$ 44 to 60mn per shipment and the banks are not in position to deal with that much.”
Traders are also eager to dispense of Omani oil because of its high furnace oil yield. Ships that used to burn furnace oil now run on gas which is more environment-friendly. “Omani light has a diminishing market for this reason and we needed someone to offer us longer-term credit since we don’t have dollars to purchase crude. Secondly, because of our power crisis, we have something to do with the furnace oil. So there was a match between what they want and what we want.”
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