Has there been sufficient discussion on opening up the fuel industry to foreign oil companies?

The crippling economic crisis has pushed the Government to taking drastic measures to keep the economy afloat. After making an official declaration of bankruptcy the Government has had to approach the International Monetary Fund (IMF) for a bail out package as an initial step to revive the ailing economy. Import controls, the imposition of high taxes, increased electricity tariffs and several other measures that have followed have seen the people in a tail spin trying to make ends meet.

The Government has now turned its attention to restructuring loss making State enterprises with a view to ease the burden of the Treasury in pumping funds at regular intervals to sustain these enterprises. To laypeople what it means is selling off whatever entities that cannot rely on themselves to generate sufficient income to pay for their existence.

Currently the Ceylon Petroleum Corporation (CPC) is in the spotlight with efforts to restructure it in process. The Sri Lankan Government’s stake in the country's oil sector is through its ownership of the CPC, which is the Stateowned enterprise responsible for the importation and distribution of petroleum products in Sri Lanka.

Those who have studied how the CPC functions attribute the losses incurred by it over the years mainly to large unpaid bills for fuel supplied to Sri Lankan Airlines and the Ceylon Electricity Board (CEB), excessive staff and corruption. All these are well within the Government's powers to remedy the situation, by taking corrective measures to prevent the run on the CPC coffers.

Both Sri Lankan Airlines and the CEB are State owned entities under the Government's control and can be made to meet their financial obligations to the CPC.

The Public Utilities-Commission of Sri Lanka (PUCSL) is the electricity sector's regulator, and according to PUCSLChairman Janaka Ratnayake, the CEB was already making monthly operational profits since October last year, after its previous tariff hikes. The more recent tariff hikes would have put the CEB on an even better financial footing and would have removed its need to obtain supplies on credit from the CPC in future. The same would apply to Sri Lankan Airlines, with the Government moving to privatise it soon.

The allegation that the CPC is overstaffed is, according to most reports, true. But this again is within the Government’s powers to remedy. In fact it would not be incorrect to say the issue is of the making of successive governments who had used the CPC to find employment for their supporters, far in excess of the corporation’s need.

Thus, on the surface the "loss making" argument alone may not be convincing enough to justify a decision to open out the fuel sector to foreign companies.

Power and Energy Kanchana Wijesekera Minister last week announced that the Cabinet of Ministers had granted approval to award licences to China's Sinopec, Australia's United Petroleum and the USA's RM Parks, in collaboration with multi-national oil and gas company Shell PLC to enter the fuel retail market in Sri Lanka. These companies will be granted a 20 years licence to import, store, distribute and sell petroleum products in Sri Lanka, the Minister said.

The main argument in support of the Government’s decision to open the petroleum sector to these entities is that this will relieve the Government of the burden of finding dollars to import the necessary fuel supplies the country needs. There certainly is merit in this argument but the question that has to be asked is whether that is the only consideration that should apply in arriving at such a far reaching decision.

While the private sector is driven entirely by profit, the State takes into consideration other factors such as the people's needs when making economic decisions. This explains why the Sri Lanka Tranpsort Board (SLTB) even runs buses on routes, and at times, when profits are non-existent or minimal.

For the SLTB and the CPC profitability alone cannot influence decisions. Being owned by the State, they have to take into consideration other factors such as the larger interests of the people when taking decisions.

While the dire economic situation may require the Government to review some economic policies, the question that has to be asked is whether there has been adequate discussion and transparency before arriving at such far reaching decisions.

Past experience tells us that it may not be so. The present Cabinet comprises members who did not care to speak up and challenge or even counsel President Gotabaya Rajapaksa’s faulty decision making while in office. It may be too much to expect them to act differently with President Ranil Wickremesinghe, particularly when he is pulling the chestnuts out of the economic fire they themselves helped to create.

What all this means is that the decision to allow foreign companies to enter the petroleum sector may have been taken without critical analysis and without subjecting it to a process of due diligence. Any decision to privatise the industry must necessarily require careful consideration and planning to minimise any adverse impact on people.

The reaction by workers and trade union members in the petroleum sector also suggests the government has not engaged with key stakeholders prior to arriving at this decision. The workers in the CPC may be having nightmares with the prospect of losing their jobs in the event of the restructuring envisaged by the Government and need to be reassured.

The decision to interdict trade union leaders engaged in the protests against the Government is unprecedented and ill advised and will not help in the process of transitioning to a multi-player petroleum sector.

It may also be appropriate at this juncture to look back at the history of the State taking over the petroleum sector in the 1960's.

In 1960, the Sirimavo Bandaranaike government nationalised the oil companies in Sri Lanka, which were mainly foreign owned. The move was part of her government's policy of promoting economic nationalism and reducing foreign control over the country's resources.

T. B. Ilangaratne, who was a minister in the Sirimavo Bandaranaike government, played the lead role in the nationalisation process. It took a great deal of courage for the then Government to proceed with the decision to nationalise the oil companies.

A foreign diplomat had told a colleague of Mr. Ilangaratne during that time that the latter ran the risk of being assassinated for acting against the interests of the powerful petroleum lobby. But the mild mannered and soft spoken minister did not relent in giving effect to his government’s policies, which he believed was in the country's best interests.

Incidentally the much maligned minister who was continuously subjected to false allegations of corruption by his political opponents died a virtual pauper several years later.

It is prudent that the Government engages in a thorough 360 degree analysis before embarking on a far reaching restructuring process of the petroleum industry. Only then could it inspire the people, including CPC workers and trade union members, that it was the best decision taken in these circumstances.