Furnace oil fiasco for CPC as CEB not drawing out expected quantities

Recent heavy rains have seen an increase in hydropower production and a low demand for furnace oil

Bad planning by the Ceylon Electricity Board (CEB) has left the Ceylon Petroleum Corporation (CPC) with a surfeit of furnace oil—as heavy rains have increased hydropower generation and reduced the need to operate expensive thermal power plants, authoritative sources said.

The CPC currently has in storage 60,000 metric tonnes of furnace oil made up of imports and its own daily production of 1,400 metric tonnes (MT) at its oil refinery. Around 400MT is sold to industries every day. The rest is stored in tanks owned by the CPC, Ceylon Petroleum Storage Terminals Ltd, CEB and West Coast Power (Pvt) Ltd. The quantities it orders from abroad are based on CEB estimates, and the CEB is the CPC’s main client for furnace oil, as it buys about 75 percent of the product.

While the CPC could pay for storage in the Hambantota tank farm and the private sector, this would be costly as the CEB, its primary customer, is not drawing out furnace oil in the quantities expected.

"Many private players have storage, which is costly, and whether the CEB or CPC bears the cost, the people pay for it," a CPC source said.

To prepare for too much furnace oil, the CPC began examining its options including seeking approval to re-export some of the furnace oil, resell it to the supplier, offer it to the bunkering community, or to find short-term storage.

CPC Chairman Saliya Wickramasuriya confirmed that storage was “a little tight”. “The CPC and the CEB will soon enter into a fuel supply agreement which will include terms of accountability for planning and ordering, from our side as well,” he said.

This meant the CPC would expect the CEB to make more accurate projections of how much fuel it needed, to avoid storage issues in future.

Meanwhile, the CEB also announced yesterday that units two and three of the Lakvijaya coal power plant had broken down. The utility’s power system report said unit three would only be online a g ain on November 26 while unit two, which suffered an emergency breakdown in the “high-pressure heater system,” would take at least another three weeks to be functional.

With the Kelanitissa combined cycle plant, which operates on cheaper naphtha, also shut down for maintenance since Friday, the CEB could now start drawing out more furnace oil. While this might provide some relief to the CPC, it meant higher costs to the utility as private power producers— which run oil-fired plants—sell electricity to the CEB at high cost.

Moreover, the CEB bought 1,500 tonnes of furnace oil from the CPC for its barge-mounted power station in the Colombo Port, yesterday.