The Ceylon Petroleum Corporation’s (CPC) recent long term contract with the Singapore unit of UAE’s Emirates National Oil Company (ENOC) for the supply of gas oil has stirred a controversy, as it was the first time in the history of the CPC that it has awarded an oil supply contract without calling for tenders, CPC trade union officials said.
They alleged that the CPC has failed to consult the Cabinet Appointed Procurement Committee (CAPC) and Technical Evaluation Committee (TEC) before awarding the contract to ENOC claiming that it was a “systematic, institutionalised” fraud. The normal procedure is to call tenders from 10 to 15 registered international oil suppliers out of 50 registered companies with the CPC for the spot or long term oil supply tender. The CPC was in the practice of following international competitive bidding process for the procurement of petroleum products and this deal was a deviation from this practice, they alleged.
At the centre of the storm are Petroleum Ministry Secretary Titus Jayawardane and a CPC official with allegations of a corrupt deal claimed in a set of documents that has been sent to the media and industry officials by a mystery party.
Responding to the claims, Mr Jayawardane said that a full international bidding and tender process does not arise as the accepted supplier ENOC in Singapore is a company fully owned by its Dubai parent ENOC which is a 100 % government enterprise and the offer was made consequent to direct negotiations between ENOC and state-owned CPC. He told the Business Times that the CPC will be able to save Rs.200 million through this transaction and he negotiated the deal as the chief accounting officer of the ministry in the best interest of the country. He noted that he has been able to prevent the intervention of local agents of oil companies by directly negotiating with government-owned foreign oil companies in order to strike this deal. The CPC Chairman was not involved in the negotiation process as he was away from the island, Mr Jayawardane said.
When contacted by the Business Times, Petroleum Minister Susil Premajayantha said that he has called a report from the Mr Jayawardane requesting him to clarify certain issues that have arisen in the ENOC deal.
He noted that the Ministry has negotiated with state oil companies in the UAE, Sultanate of Oman, and Petronas of Malaysia and the cabinet had decided to award the contract to ENOC Singapore as there were no (better) offers from the UAE, Petronas or Oman. The CPC had to award this tender cutting down some of the tender procedures as it had to procure gas oil without delay due to price volatility in the market, he said.
The Minister said that ENOC UAE submitted an offer with a premium of US$1.60 per barrel and interest premium of LIBOR plus 2.96 per annum which is very beneficial for CPC compared to the premium indicated in spot tenders. The average price paid previously by the CPC had been Singapore PLATTS plus $2 and above. The price quoted was accepted without resorting to a full international bidding and tender process as it is beneficial for the CPC to purchase 240,000 metric tonnes of Gas Oil for a three month supply. Later the period was extended to six months under cabinet approval on recommendations made by the Treasury, he revealed. He noted that there was no fraud in the deal. In fact this company has agreed to supply oil for the month’s term at the rate of spot tender.
However industry sources said that the minister is trying to compare spot tender prices of one cargo of 300,000 barrels to be supplied in 20 days as against a term contract of 1,800,000 barrels of six cargoes to justify the price of $1.60 per barrel without calling for competitive bids from all registered suppliers. An expert in the petroleum sector told the Business Times that if the CPC had floated international tenders for the gas oil for supply of 1,800,000 barrels they would have received a price below $1 per barrel and interest of LIBOR six months plus 180 day credit, instead of $1.60 per barrel and interest premium of LIBOR plus 2.96 per annum offered by ENOC’s Singapore unit. CPC trade union officials confirmed the information in documents that the Petroleum Secretary negotiated the deal with the assistance of a senior official in the CPC who had worked for ENOC Singapore taking no pay leave from the CPC.
But Premajayantha says he is convinced that the deal is beneficial for CPC.
However finance regulations appear to have been flouted even in a direct government-to-government contract. According to a senior Finance Ministry official, such negotiations should be carried out by the Ministry of Finance and Director General External Resources and the first requirement is to obtain a credit line from the respective government on a soft loan payable in 12 years with attractive interest rate. When the credit line is approved the foreign government will nominate a state-owned business undertaking to negotiate pricing and deliveries with the CPC. The next step is for the Finance Secretary or Director General External Resources to inform the CPC through the Ministry of Petroleum to negotiate prices through TEC and CAPC. This procedure has not been followed in this particular gas oil deal, he said. |
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