by Sanath Nanayakkare
A blueprint of opportunities, challenges and the way ahead for the loss-making Ceylon Petroleum Corporation (CPC) was unveiled last week by YEAR Corporate Solutions at Taj Samudra Colombo.
Furthermore, YEAR offered potential public-private partnership (PPP) models to turn the financially battered CPC around.
The participating policymakers, professionals, investors, economists and other individuals who are well aware of the key reforms needed for the debt-laden CPC discussed the reasons why Lanka Indian Oil Company (LIOC), the sole competitor in the fuel retail market in Sri Lanka, since its inception in Sri Lanka, has made virtually continuous profits, while CPC’s financial position is a major concern for its stakeholders.
The blueprint, announced by Dr. Janaka Fernando and Andreas Hergenrother, was presented to the Minister of Energy and Energy Kanchana Wijesekera, SJB MP Dr. Harsha de Silva and a number of prominent people, for an open discussion on the forum.
Both politicians made comments in favor of privatizing the CPC, while ensuring quality of service, responsibility for pricing and distribution of fuel without interruption.
The discussion focused mainly on CPC’s financial data over the past 10 years, its portfolio of products and services, its market structure, employment, social benefits, key performance indicators (KPIs), a comparison of Lanka Indian Oil Company (LIOC) and CPC using general figures, main drivers of losses, proposals for suitable PPP models for potential investors and policy recommendations for the Government of Sri Lanka.
A few comments from Dr. Janaka Fernando and Andreas are as follows:
“The CPC represents a substantial source of revenue and expenditure for the government as one of the largest state-owned enterprises. However, the CPC has become a heavy burden on the government and the Sri Lankan economy due to its poor performance. CPC’s total debt has risen at an alarming rate in recent years.”
“The debt amount of the CPC, which is Rs. 529 billion at the end of 2020, increased to Rs. 561.3 billion by the end of 2021, and the amount has further increased to Rs. 700 billion by July 2022, the highest debt level for a state-owned company in Sri Lanka. Meanwhile, the CPC accounted for 37.3% of Sri Lanka’s government-guaranteed state-owned debt. In addition, the cumulative net loss of the CPC at the end of 2019 was Rs. 337 billion. This will further increase with the net loss of Rs.82.2 billion in 2021 and is likely to increase further in 2022, according to CBSL 2021.”
“Conversely, LIOC, the only competitor in the fuel retail market in Sri Lanka, has continuously made a profit since its inception in Sri Lanka, except for a few years. LIOC registered Rs. 998 million pre-tax profit for the year ended March 2021, along with a positive retail profit of Rs. 12.3 billion by the end of March 2021.”
“Many countries around the world are increasingly relying on the private sector to invest in infrastructure services. PPP is not an unknown concept in the petroleum industry in Sri Lanka. The petroleum market, which was nationalized in 1961, has had seven successful PPPs since the early 1990s. However, before identifying potential PPP models for CPC, it is necessary to understand the scope of CPC in the petroleum distribution process in Sri Lanka. Various forms of PPP models are available, and the choice of an appropriate method depends on the nature of the particular state and project in question.”
YEAR Corporate Solutions has made the following policy recommendations to the government to help CPC achieve and maintain a robust performance:
a. Discuss openly with all stakeholders such as government, trade unions and potential investors about sector-related PPP models and privatisation.
b. Evaluate and reduce subsidies
c. Minimize currency risk
d. Increase liquidity
e. Introduce a transparent pricing mechanism that covers all costs
f. Breaking the jet fuel monopoly
g. Allow tariff and free competition for fuel suppliers and enforcement of transparent antitrust law
h. Increase transparency and good governance
i. Minimize production risk
j. Increase storage capacity
k. Increase human resource efficiency
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