Financial Times

Govt. defers third player in petroleum sector
The government has put off plans to introduce a third player into the petroleum retail sector and instead has asked the Ceylon Petroleum Corporation to go ahead with plans to refurbish its petrol stations and increase refining capacity.

This was revealed in an interview last week by Mano Tittawella, chairman and Chief Executive Officer of the Strategic Enterprise Management Agency (SEMA) responsible for revamping 12 key state-owned commercial organizations including the CPC. (See page 2 for interview) The decisions comes after persistent objections to the entry of a third player in the petroleum sector by labour unions who threatened strikes to disrupt the economy, and uncertainty over the application of the fuel pricing formula which the government is now trying to revise.

Asked about the status of the reforms in the petroleum sector, Tittawella said: “We have deferred for the moment the third player. The CPC has shown some significant improvements in the last few months despite the oil prices. It also has been told now to go on their own expansion programmes particularly in refurbishing their stations.” This expansion programme had been on hold until the government decided on the third player.

But now the CPC has been told to go ahead and put in the money to expand their retail outlets, make them more customer friendly and modernize equipment. “In addition, the big project the CPC is embarking on is the refinery expansion for which we have got a couple of very good proposals on BOO/BOT (Build-Own-Operate/Build-Operate-Transfer) basis,” Tittawella said.

“This is important for the government because we’re now only refining 50 percent of our requirements and importing the rest of it. It’s in the refining that the profit is.” The government now intends to double the refinery capacity to 100,000 bpd from 50,000 bpd.

This would enable the CPC to make more profits, particularly because under the privatization deal with Indian Oil Corporation, the LIOC was obliged to take the refined product from the CPC. Tittawella acknowledged that putting off the entry of the third player into the petroleum market could send wrong signals to foreign investors.

But he said it was important for the government to establish a proper criteria and a level playing field for the entry of investors and remove any uncertainty.
“I think serious investors would like to come into a market only if they know what the playing field is. It will be difficult for them to come with uncertainty. So it may send the wrong signals but it is best to get the investors, if we are getting them at all – we may not even work on a third player – once we’re sure.”

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