Selling the family jewels

Privatisation. To some it’s a scary thought; to others it’s a means of promoting competition and giving customers value. The above headline might seem unkind to the governing authorities who are on the path to selling off loss-making state ventures to private parties. After all, the intention is to provide the consumer a better deal or is it a process of garnering valuable foreign exchange to beef up the country’s forex coffers?

These thoughts were on my mind when analysing recent steps taken by the government to further privatise the import and distribution of fuel. With three foreign parties selected for this purpose and with Lanka IOC (LIOC) already in play, the majority of the distribution and sale of fuel would now be in the hands of private parties. Is that a scary thought? In most circumstances, the reality is that the Government should move out of business.

The move triggered protests from angry trade unions which forced a stoppage of fuel distribution by the Ceylon Petroleum Corporation (CPC) on Wednesday, resulting in queues at fuel stations.

I was in the mood to discuss this with my circle of friends and as if reading my mind, I received a call from my jollymood economist friend, Sammiya (short for Samson), who wanted to discuss these developments.

“Privatising the distribution of fuel would hopefully bring benefits to the consumer at the pump,” he said.

“That is the intention. However, the entry of LIOC hasn’t helped reduce prices of fuel. The CPC and LIOC sell at the same price instead of offering competitive prices,” I said.

“I hope this is not a hurried plan by the authorities to gain some dollars,” he said.

“The government is with their backs to the wall in the current economic crisis. They have to come up with somewhat desperate measures to get on the path of recovery,” I said.

“In a way, having the bulk of the fuel sheds owned by the private sector would limit the influence trade unions have in controlling distribution. With more sheds in the hands of the private sector, any disruptive strike action would only affect less than half of the sheds in operation. This is a good sign,” he said, winding up a long conversation which also dealt with current issues in the economy.

When LIOC entered the market in the mid-2000s, it was assigned 100 CPC-owned sheds. From small beginnings, it has emerged as one of the leading companies in Sri Lanka. However, the intention of the governing authorities at that time to provide competition in pricing hasn’t worked so far – unlike in other countries where fuel is priced at different rates among many players in operation.

It remains to be seen whether the three new players in the fuel field would offer competitive pricing. However, the positive part of this process is that henceforth (once the three new players start operating), CPC trade unions cannot hold the consumer to ransom with frequent strikes disrupting supply.

While the CPC has 850 sheds, the LIOC has over 200 sheds with 50 more new ones to be added shortly.

This week the Cabinet granted approval to China’s Sinopec, Australia’s United Petroleum and RM Parks of the USA, in collaboration with multinational oil and gas company - Shell Plc, to enter the fuel retail market in Sri Lanka.

Energy Minister Kanchana Wijesekera said the Energy Committee and other relevant procurement committees had given their approval and recommendation to award the three companies the licences to operate.

Each company will be allocated 150 sheds currently operated by the CPC in addition to setting up 50 more new stations by each of the new operators. This means that CPC-owned sheds would reduce to 400 and in total the private sector would own over 800 sheds compared to less than half by the CPC.

The new operators are to be granted a licence to operate for 20 years to import, store, distribute and sell petroleum products in Sri Lanka, it was stated.

The new steps towards privatising fuel distribution followed the entry last October of the Petroleum Products (Special Provisions) Bill providing for new suppliers to enter as importers, distributors and retail operators for petroleum products.

In a related move, the Government said seven companies from Nigeria, China, Malaysia, Singapore, Iran, United Arab Emirates (UAE) and Sri Lanka have submitted expressions of interest (EOI) to operate the proposed new oil refinery in Hambantota.

The Government is moving speedily, largely because of state sector reforms in consultation with the International Monetary Fund, to sell fully or part stakes in a host of state ventures like SriLankan Airlines, Sri Lanka Telecom and Hilton Hotel. In the case of Sri Lanka Telecom, the first choice in selling the government stake of 49 per cent has to be offered to the Malaysian company that has a 51 per cent stake in this company which has been showing improved results in recent years. Why the Government wants to sell its stake in a company that is showing profits is a mystery.

At this point I tuned into the conversation under the margosa tree and they too were discussing the privatisation of CPC units.

“Aiyo aei Lanka kanija thel neethigatha sansthawe vurthiya samithi haema serama weda varjana wala yedenne (Aiyo why do the trade unions at CPC have to repeatedly go on strike),” asked Kussi Amma Sera.

“Egollo kiyanawa, eh sansthawata athiwenna laaba enawa kiyala, eka nisa sansthawa vikunanna avashya nae kiyala (They say CPC is making enough profits to sell fuel and must not be sold),” said Serapina.

“Rate weda varjana wedii. Dosthara-waru virodatha pavath wana kota, roginta thama balapanne (There are too many strikes in the country and protests by doctors affect patients),” noted Mabel Rasthiyadu.

As I wound up my column, Kussi Amma Sera walked into the office room with my second mug of tea, asking: “Petrol gaha-gaththada (Did you pump petrol)?”

I nodded as a response, reflecting on the recent developments in the fuel sector and hoping the privatisation of fuel distribution would eventually help consumers receive competitive prices.