Petrol cri­sis: Ur­gent need for in­de­pen­dent reg­u­la­tor

Pub­lic Util­ity Com­mis­sion says Sri Lanka needs to en­sure en­ergy se­cu­rity

Sunday Times (Sri Lanka) - - FRONT PAGE -

The week- long fuel cri­sis which trig­gered a war of words be­tween Lanka In­dian Oil Com­pany ( LIOC) and the Min­is­ter of Pe­tro­leum In­dus­tries has high­lighted the ur­gent need for an in­de­pen­dent reg­u­la­tor.

LIOC, which claimed it was un­fairly crit­i­cised for the petrol short­age, is among those call­ing for mar­ket reg­u­la­tion. The Pub­lic Util­i­ties Com­mis­sion of Sri Lanka has also long pushed for re­form.

“We need to en­sure en­ergy se­cu­rity,” PUCSL Di­rec­tor Gen­eral Damitha Ku­maras­inghe said. “There are two play­ers now. We don’t know if there is pric­ing ef­fi­ciency or whether the in­ef­fi­cien­cies of the CPC (Cey­lon Pe­tro­leum Corporation) and LIOC are go­ing into the price. We have to en­sure that pro­cure­ment of pe­tro­leum re­sources is done on the right ba­sis, from the right source.”

“An in­de­pen­dent, third party has to be there,” he said. “The consumer is also help­less where pe­tro­leum is con­cerned. There is no con­sis­tency in fuel or ser­vice stan­dards. Nat­u­ral gas is also com­ing in. There are safety is­sues to be con­sid­ered. When we de­velop as a coun­try, we must have these struc­tures in place.”

The down­stream pe­tro­leum in­dus­try is still gov­erned by the Pe­tro­leum Prod­ucts ( Spe­cial Pro­vi­sions) Act and the Cey­lon Pe t roleum Corporation Act. The Pe­tro­leum In­dus­tries Min­is­ter has over­all reg­u­la­tory powers.

Draft amend­ments to these two laws to en­able the PUCSL to fully reg­u­late the pe­tro­leum in­dus­try are held up at the Min­istry.

There must be bet­ter co­or­di­na­tion be­tween rel­e­vant bod­ies to pre­vent fu­ture crises, LIOC Man­ag­ing Di­rec­tor Shyam Bohra said . Things can get com­pli­cated be­cause the CPC and LIOC are com­peti­tors, and the CPC is un­der the Min­is­ter who is the reg­u­la­tor. An im­par­tial reg­u­la­tor was the best way for­ward.

The LIOC in a state­ment blamed the petrol fi­asco on the CPC which it said caters to 84 per­cent of the Sri Lankan mar­ket. Why, asked Mr Bohra, is the small player be­ing tar­geted? The onus was on the ma­jor­ity party to en­sure there was no short­age. The cri­sis was pre­cip­i­tated by panic buy­ing.

LIOC has now can­celled its term con­tract with the French oil com­pany M/s To­tal which on Oc­to­ber 16 brought in 35,000 met­ric tonnes of petrol that did not meet CPC/ CPSTL ( Cey­lon Pe­tro­leum Stor­age Ter­mi­nals Ltd) stan­dards. While the chem­i­cal spec­i­fi­ca­tions were ful­filled, laboratory tests showed the “pres­ence of vis­i­ble im­pu­ri­ties” in the sam­ples.

With To­tal not sup­ply­ing a re­place­ment cargo on time, LIOC has con­sulted lawyers on pos­si­ble le­gal ac­tion. This is ex­pected to be a drawn-out process. It is be­ing done un­der the terms and con­di­tions of the agree­ment To­tal has with LIOC.

Mr Bohra said there was no ar­gu­ment that the TO­TAL stock did not meet cer­tain cri­te­ria. The re­jec­tion, there­fore, was jus­ti­fied. But as­sign­ing blame on LIOC for the subsequent short­age was not. Nei­ther did the com­pany at­tempt to “pres­surise” Pe­tro­leum In­dus­tries Min­is­ter Ar­juna Ranatunga to ac­cept the con­sign­ment. LIOC merely acted as mes­sage- car­rier be­tween To­tal-- which of­fered to fil­ter the petrol--and the Min­istry, which did not want that con­sign­ment.

LIOC and CPC keep their stocks to­gether in a ‘com­mon user fa­cil­ity’ ( CUF) which is es­sen­tially a set of tanks in Kolon­nawa man­aged by CPSTL. The shar­ing of oil be­tween CPC and LIOC hap­pens via book trans­fers. Phys­i­cally, the stocks are pooled to­gether.

LIOC’s slice of the mar­ket is so small that each ship­ment of 30- 35,000MTs lasts around 50 days. It has a buf­fer stock of 3,500MT of petrol at the CUF. Even with the re­jec­tion of the To­tal cargo, there­fore,

The LIOC ves­sel that ar­rived on Oc­to­ber 16 con­tained 30,000MT of 92 and 10,000MT of 95 oc­tane petrol. The stocks were re­jected after two dif­fer­ent tests found vis­i­ble par­ti­cles in sam­ples, said Cey­lon Pe­tro­leum Com­mon Work­ers’ Union (CPCWU) Con­vener D.J. Ra­jakaruna.

The com­pany was un­der obli­ga­tion to im­me­di­ately sup­ply re­place­ment cargo. It had first said an­other ves­sel would ar­rive by Oc­to­ber 31. There is usu­ally a 10-day win­dow after a fuel ship­ment is re­jected for a re­place­ment to get here. And there were suf­fi­cient stocks in fuel stor­age to man­age dur­ing this time, Mr Ra­jakaruna said.

But trou­ble be­gan on Oc­to­ber 27, the trade union­ist said, when LIOC of­fi­cials said M/s To­tal would not be send­ing a re­place­ment stock. “The LIOC waited till the last mo­ment to say an­other ship wasn’t com­ing,” he claimed. “The com­pany did this to force us to ac­cept the re­jected cargo.”

Mean­while, the CPC’s own ves­sel could not de­part from the UAE on sched­ule ow­ing to a de­lay of sev­eral days to load the ship. Mr Ra­jakaruna de­scribed the de­lay as “un­usual.”

The cri­sis was ex­ac­er­bated by the sud­den shut­down of the Sa­pau­gaskanda oil re­fin­ery on Oc­to­ber 31. The CPC lost the abil­ity to re­fine 700MT of petrol a day dur­ing this pe­riod.

LIOC of­fi­cials were aware of these is­sues as they at­tend the weekly stock re­view meet­ings where in­ven­tory is taken and the sched­ules of in­com­ing ves­sels for the next two months are ex­am­ined. there was enough for the com­pany to ser­vice its sheds un­til a ship ar­rived on Novem­ber 10.

When the To­tal tanker docked on Oc­to­ber 16, a sam­ple of pe­tro­leum was taken and re­jected. Mean­while, the CPC was also in­formed that its own con­sign­ment--the next in­stall­ment in a term con- “LIOC knew the ex­tent of the cri­sis, and it used the op­por­tu­nity to its ad­van­tage,” Mr Ra­jakaruna al­leged.

But he also stressed that the Gov­ern­ment was chiefly to blame for the fuel fi­asco. “Peo­ple shouldn’t have to stand in the street for petrol just be­cause one ship doesn’t turn up,” he pointed out.

The CPC had in­suf­fi­cient stor­age to hold a suit­able buf­fer stock. “This is why we have de­manded the re­turn of tanks in the Trin­co­ma­lee tank farm,” Mr Ra­jakaruna said. Last year, a Cabi­net pa­per was pre­sented to ac­quire some of the tanks after it was found there was not enough stor­age to stock fuel from four ves­sels that had brought in emer­gency con­sign­ments for ther­mal power plants dur­ing the drought.

“Cabi­net ap­proved it, but the Prime Min­is­ter had it with­drawn by pre­sent­ing a memo say­ing it would im­pede talks on run­ning the tank farm as a joint venture with In­dia,” he said.

The CPC con­trols more than 80 per­cent of the mar­ket but could not pre­vent long lines at fuel sta­tions be­cause it had no stor­age. If the LIOC, with 16 per­cent of the mar­ket, is al­lowed full sway over the tank farm, there would be noth­ing to pre­vent it from ac­quir­ing more sheds and tight­en­ing its grip.

"The Gov­ern­ment was also let­ting the oil re­fin­ery to die a nat­u­ral death in­stead of up­grad­ing it from its cur­rent pro­duc­tion ca­pac­ity of 50,000 bar­rels per day," Mr Ra­jakaruna claimed.

If the Chi­nese were given a free hand to build a tract--would come a few days later than it was sched­uled to ar­rive.

“By around Oc­to­ber 24 or 25, those in the sys­tem in­clud­ing at LIOC and CPC knew we will have a sit­u­a­tion where one con­sign­ment had been re­jected and other looked like it would be de­layed,” said an au­thor­i­ta­tive of­fi­cial source who asked not to be named.

While LIOC had asked To­tal to re­place the ques­tion­able stocks in keep­ing with the con­tract, the sup­plier had said it would take 20-21 days. “Be­cause of the time factor, the sup­plier sug­gested fil­tra­tion,” the source said. “The ini­tial of­fer was to do it on land but this was com­pli­cated be­cause we would have had to ac­cept the con­sign­ment. The sup­plier then said it will bring an­other ves­sel for ship-to-ship fil­tra­tion.”

This tech­nique sees petrol be­ing cleaned while trans­fer­ring from one ship to an­other. It is called STS or ship-to-ship trans­fer. All this was to be done at To­tal’s cost.

On Oc­to­ber 25, this op­tion was dis­cussed at length by the Tech­ni­cal Spec­i­fi­ca­tion Com­mit­tee (TSC). It agreed to al­low an STS and for a sam­ple to be tested again after fil­tra­tion to de­ter­mine whether it was suit­able for dis­tri­bu­tion. The TSC also said it might con­sider ac­cept­ing the con­sign­ment if it came from a new ship with a new bill of lad­ing. “It did not want to test a sam­ple from the same ship,” the source said.

But dur­ing the weekly stock re­view meet­ing on Oc­to­ber 31, Min­is­ter Ar­juna Ranatunga, who re­turned from over­seas travel, is­sued in­struc­tions that the Gov­ern­ment had no wish to ac­cept a ship­ment that had been re­jected. This was de­spite be­ing told that there would be a short­age by Novem­ber 5 or 6--some­thing re­fin­ery in Ham­ban­tota and the Trin­co­ma­lee oil tanks are handed over to In­dia, the CPC will lose ev­ery chance to ex­pand stor­age, said Ban­dula Sa­man Ku­mara, Pres­i­dent of the CPC’s Ni­da­has Se­vaka Sanga­maya.

“There’s the like­li­hood of such crises hap­pen­ing again if this is al­lowed,” Mr Ku­mara warned. (Un­der the me­moran­dum of un­der­stand­ing signed be­tween In­dia and Sri Lanka to set up a joint venture for the Trin­co­ma­lee oil tank farm, how­ever, ten tanks would be for the exclusive use of the CPC).

Un­qual­i­fied peo­ple were ap­pointed to im­por­tant de­part­ments to han­dle fuel pro­cure­ment and stor­age, said Cyril Suduwella, an en­ergy ex­pert who worked for three decades at the Sa­pu­gaskanda Oil Re­fin­ery.

“When we have a fuel vac­uum such as this, we need a qual­i­fied team of ex­perts to man­age the cri­sis,” he ex­plained.” These po­si­tions are now filled by po­lit­i­cal cronies who have no knowl­edge or ex­per­tise in their fields. They of­ten find them­selves out of their depth when a cri­sis oc­curs.”

“The cri­sis is a clear in­di­ca­tion that the CPC’s se­nior man­age­ment had no proper knowl­edge of the oil mar­ket,” he said. “They could have floated spot ten­ders and ob­tained petrol from sup­pli­ers in places like Sin­ga­pore or nearby coun­tries. But that can’t be done with­out a proper knowl­edge of the sub­ject.”

To avert prob­lems in fu­ture, the ca­pac­ity of the Sa­pu­gaskanda re­fin­ery must be in­creased to be­tween 100,000 to 150,000 bar­rels, he said. CPC and LIOC had both re­alised by then.

It was on Fri­day, Oc­to­ber 3, that mes­sages started cir­cu­lat­ing via what­sapp and other plat­forms warn­ing of a scarcity. One of them read: “LIOC has re­jected their lat­est 40k MT petrol ship­ment, after the laboratory re­sults of CPC re­vealed that is [sic] sub­stan­dards [sic]. Around that time, Sa­pu­gaskanda re­fin­ery un­der­went an un­ex­pected plant shut­down due to a power fail­ure. Hence still Sa­pu­gaskanda too can­not meet the stan­dard Oc­tane re­quire­ment. Con­sid­er­ing the day- to- day de­mand we all can sur­vive un­til next Tues­day. If Sa­pu­gaskanda re­fin­ery fails to re­cover and meet the Oc­tane re­quire­ment be­fore next Tues­day ob­vi­ously there will be a petrol short­age in the coun­try. So bet­ter to top up your petrol tanks.”

This was com­pounded by Min­is­ter Ranatunga is­su­ing a me­dia com­mu­niqué re­quest­ing the pub­lic not to panic but to use petrol spar­ingly. He also blamed the LIOC for the short­age say­ing the sit­u­a­tion arose “due to the re­jec­tion of sub­stan­dard ship­ment of oil” im­ported by that com­pany.

Diplo­matic chan­nels were also used to con­vey to var­i­ous lev­els of the Gov­ern­ment of an im­pend­ing short­age. This might have been mis­con­strued as “pres­sure”, po­lit­i­cal sources said. Min­is­ter Ranatunga an­grily told me­dia he would not suc­cumb to un­due in­flu­ence.

The short mes­sages com­bined with poor com­mu­ni­ca­tion by the Gov­ern­ment trig­gered a frenzy. Queues piled up at petrol sta­tions. “While a cri­sis would have hap­pened by Novem­ber 5-6, it now erupted on Novem­ber 3,” an of­fi­cial said, re­quest­ing anonymity.

The CPC then cut down on is­su­ing stocks to tankers and started ra­tioning petrol. The sit­u­a­tion be­came pro­gres­sively worse dur­ing the week­end, forc­ing Cabi­net to meet on Mon­day, Novem­ber 6. Fol­low­ing that dis­cus­sion, the Gov­ern­ment for­mally re­quested In­dia to help with emer­gency sup­ply. This was duly dis­patched from In­dia’s re­fin­ery in Pa­radeep in the East Coast. But this would also take two-three days' sail­ing time.

That re­fin­ery had only 21,000 kilo­litres (not met­ric tons) of 92 oc­tane petrol that met CPC spec­i­fi­ca­tions. All of it was sent to Colombo as a spe­cial con­sign­ment. LIOC usu­ally does not pur­chase petrol from In­dia and sell to Sri Lanka. It buys fuel on a global com­pet­i­tive ten­der. This is how To­tal had secured the last con­tract.

In­dia also of­fered 14,000KL from its Kochi Re­fin­ery but said Sri Lanka would have to send a tanker to col­lect it as one was not avail­able. This op­tion was not taken. In the mean­time, CPC’s own ship ‘Neveska Lady’ docked in Colombo on Novem­ber 8 with 40,000MT on board.

“Petrol al­most ran out on Novem­ber 8,” the of­fi­cial said. “Ra­tioning was go­ing on and a lit­tle less was con­sumed. The CPC did not have suf­fi­cient buf­fer, if you dis­counted LIOC stocks. This sit­u­a­tion, es­pe­cially the com­mu­ni­ca­tion as­pect, was just not han­dled well.”

Re­act­ing to re­ports that LIOC had ra­tioned fuel, too, Mr Bohra said they had held back some for emer­gency ser­vices. The com­pany had to take an­other hit be­fore the con­tro­versy fiz­zled out. It of­fered to send a ship­ment of diesel in the tanker from Pa­radeep as there was spare ca­pac­ity. This was mis­in­ter­preted as an at­tempt to sell “sub­stan­dard diesel” to Sri Lanka when the In­dian stan­dards were Euro 4 and higher than those here.

“This whole thing went off re­ally badly,” the of­fi­cial re­flected. “And the Gov­ern­ment has taken a se­ri­ous hit, un­nec­es­sar­ily.”

The oil tanker that brought the sub­stan­dard fuel berthed out­side the Trinco har­bour . Pic by Amadoru Amara­jeewa

LIOC Man­ag­ing Di­rec­tor Shyam Bohra. Pic by Indika Han­duwala

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