ECONOMYNEXT – Sri Lanka’s petrol panic which reached a flashpoint this week has been smouldering since mid-October amid a tug-o-war between the island’s authorities controlling a state-run distributor and a unit of Indian Oil Corporation which has a smaller market share, it has been revealed.
Sri Lanka has rejected two shipments of petrol brought by an Indian oil distributor and refused to allow a cargo of petrol found with particles to be filtered because it has ‘not been done before’, officials said.
Hundreds of cars are lining up at petrol stations especially in the densely populated capital Colombo to pump petrol, with stock running out fast as people bought more fuel than usual.
Brewing Crisis
The roots of the crisis had begun over two weeks ago on October 16 when a ship with a cargo of petrol ordered by Lanka IOC, had arrived in Colombo.
It had been rejected after sample tests showed particulate contamination, Petroleum Minister Arjuna Ranatunga said.
Officials said it was believed that the fuel had contaminated on board the ship as the fuel was certified as clean when loaded.
Minister Ranatunga said he was not sure whether the fuel was of bad quality in the first place.
Lanka IOC had offered another cargo of petrol and diesel, which had been rejected because the diesel was not found to be within the specifications.
LIOC had then offered to filter the fuel in the ship, by transferring the cargo to another ship.
Against Procedure
Minister Ranatunga said he could not agree to the process as there was no guarantee that the fuel would be clean, particularly as there were incidents in the past when vehicles were damaged with bad fuel.
He had come under severe pressure to accept the cargo, but had not given in, he said. Some private parties had also talked to him to influence the case, he said.
Officials said no opportunity was given to try the filtering process and test the fuel, as it was against ‘standard operating procedure’. Whether or not such operations were carried out abroad, it had not been done in Sri Lanka, they said.
Ship-to-ship transfers could also affect fuel including moisture, in some cases, industry analysts say.
At the moment Sri Lanka does not have an independent regulator for petroleum, who can make such decisions.
Two labs had tested refined products, one was at Ceylon Petroleum Corporation and the other at the common user terminal, in which LIOC had a minority one third stake.
In 2011, engines of hundreds of cars were damaged due to off-spec fuel imported by Ceylon Petroleum Corporation, leading to stricter checks.
Ranatunga said the ship with the contaminated fuel had been taken to Trincomalee, and was being closely monitored, he said.
Under contractual agreements with Sri Lanka, LIOC was obliged to deliver fuel to specifications, he said.
He had President Maithripala had spoken to President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe. Future action would be decided after the current crisis is over, he said.
Stocks
At the moment Sri Lnaka had tanks to store 90,000 metric tonnes of fuel, and daily use was about 2,500 metric tonnes, Minister Ranatunga said.
A shipment of about 40,000 metric tonnes was imported when stocks went down to about 50,000 metric tonnes.
It was more expensive to bring smaller consignments of about 20,000 metric tonnes.
The procedure had been started before he became minister and had been operating, he said.
Minister Ranatunga had taken over three months ago.
He said in the future, CPC may return to purchasing in 20,000 metric tonnes lots, which would be more expensive than buying 40,000 tonne lots.
It took about eight days for a stock to be loaded from Singapore and delivered to Colombo and about five to six days from India, he said.
At the moment about 10,000 metric tonnes were in store.
Officials were unable to disclose who owned the stocks in the common user terminal, and what percentage if any was owned by CPC and LIOC.
Ceylon Petroleum Storage Terminals Ltd, the common user terminal had a sophisticated SAP system which in theory could show the actual ownership.
Officials were questioned how LIOC, which had around a quarter of the market could precipitate a crisis.
Panic
Minister Ranatunga blamed unknown persons who sent text messages saying fuel was running out for triggering panic buying.
In addition to the 10,000 metric tonnes, which included 2,000 metric tonnes of ‘dead storage’, CPC’s refinery was also producing petrol.
Minister Ranatunga said 550 metric tonnes were being produced a day. Some officials said 750 800 metric tonnes a day were also being produced on some days.
If people did not try to fill up their tanks, CPC could have kept up fuel supplies without a problem, Minister Ranatunga said.
A decision was made not to tell the full story to the public as it was felt that the stocks were sufficient to supply the country until CPC’s stocks arrived.
But on November 06, the decision had been made to go public.
A ship due to reach Colombo on November 08, had on board 32,500 metric tonnes of 92-Octane petrol and 7,500 tonnes of 95-octane fuel, Ranatunga said.
That tanker was originally expected in Colombo on November 02 or 03 had also been unaccountably delayed by six days, Minister Ranatunga said. Meanwhile the refinery had also been shut down following an electrical fault for several says, he said.
"If the refinery does not breakdown again, we can keep supplying," he said.
Minister Ranatunga said he wanted solve the problem first but he wanted to find out why all this happened at the same time, when the current crisis was over.
He also questioned the privatization of the petroleum sector, leading to the entry of LIOC which had occurred 15 years ago.
LIOC was given a third of petrol stations and a World War II tank farm in Trincomalee which was abandoned for half a century by an administration headed by Prime Minister Ranil Wickremesinghe in a government-to-government deal.
In addition to privatization, LIOC, text message senders, he also said unions had also contributed to the crisis, by making various statements.
(Colombo/Nov07/2017)