Another CPC controversy

Tuesday, 17 July 2012 00:00 - - {{hitsCtrl.values.hits}}

A SWISS-based company has emerged to negotiate a disputed payment deal the UAE-based Fujairah Petroleum Company had signed with the Ceylon Petroleum Corporation (CPC) to supply up to 160,000 tons of low sulphur oil.

The blatant lack of transparency of this deal has raised new questions over the governance of CPC and why repeated transgressions have been allowed with little or no redress.

It was reported that the Government agency stands to lose at least Rs. 1 billion from the deal, which industry sources allege is irregular and violated tender norms.

The first cargo of 35,000 to 40,000 tons of low sulphur oil was sold to the CPC at Singapore Platts +$108 per ton by Fujairah and the cargo was discharged. However, a dispute arose over the price of both the first and a new, second cargo of the same quality. A two-member team from the Swiss-based MOCOH, an international commodities trader, arrived in Colombo this week and is negotiating with CPC authorities for a fresh new price for the cargoes.

The problem hinges on the obscurity of the new firm and few people understanding under what precedent the CPC is “rectifying” the deal. Given that the CPC has a long track record for corruption as well as staggering losses that are undermining the passing of global price reductions to the consumer; the matter needs in-depth attention from stakeholders.

It must be conceded that the losses of State-Owned Enterprises (SOEs) are due to non cost-reflective pricing policies, operational inefficiencies and poor governance; and the recent move to more cost-reflective administered prices is a welcome development. However, it should be accompanied by a concerted and accelerated campaign to strengthen the ongoing efforts to improve the performance of SOEs as a whole.

The Committee on Public Enterprises (COPE) has repeatedly pointed out the massive financial and resource mismanagement taking place in SOEs, particularly in the CPC. Sub-standard fuel imports, sporadic price increases, financial scandals and strikes are among the many ways that the public has experienced the CPC’s inefficiency – many shortcomings that go routinely unpunished.

As pointed out by the Pathfinder Foundation, there are 81 SOEs and the Government is also a partial owner of several entities established under the Companies Act (2007). The total turnover of SOEs amounted to Rs. 954 billion in 2010. The five largest SOEs (CEB, CPC, Sri Lanka Ports Authority, Bank of Ceylon and People’s Bank) exceeded the turnover of all 245 companies listed in the Colombo Stock Exchange. In addition, SOEs accounted for 17.2% of GDP and employed 160,000 people (2010).

Such massive statistics show that the ever-increasing losses of SOEs cannot be sustained by the Sri Lankan economy. The country can no longer afford to overlook the negative effects of underperforming SOEs. Failure to take effective action can have severe adverse consequences for ordinary people if markets lose confidence in Sri Lanka’s creditworthiness. In the short term, the cost of living will remain challenging due to the sustained prices of fuel. Surely it is time to change.