CPC Chairman Dhammika Ranatunga speaks out

Ceylon Petroleum Corporation (CPC) Chairman Dhammika Ranatunga in an exclusive interview with Daily FT speaks about the performance of the State enterprise, recent decisions made, its challenges and the future. He also responds to allegations against the debt-ridden CPC while highlighting the importance of getting the right energy mix for Sri Lanka to 

avoid any crisis. Following are excerpts:

By Charumini de Silva

Q: There has been much discussion on expanding the Sapugaskanda refinery. What is the status now? 

A: We do this shutdown every three years, but that doesn’t mean that we do it only then and there for one-and-a-half months. From the date of the last shutdown, we are working towards the next shutdown. During this process we evaluate pretty much everything, from machinery, pipeline, storage tanks and condition of all the infrastructure that needs replacement, what can continue for few more years with repairs and what needs to be installed new. This process of cleaning up of the infrastructure gives us a three to four to per cent increase in our total production. If you relate this small increase of efficiency in production with the 30,000 barrels per day, it generates a significant increase in terms of profit in that refinery.

Q: The CPTSL was keen on upgrading more facilities during the year. What are they and what is the investment?

A: We are in the process of looking into having at least 100,000 barrels per day in the refinery to meet the country’s need. I think somewhere in 2012, they have done a study for a 70,000 barrel per day refinery and the saving on that was around $ 400 million per annum. So, when you push it to 100,000 barrels, it means we are going to hit about $ 400 to $ 450 million in savings, opposed to the importing of finished products. 

There are some areas we have identified after observing what we have at the present refinery. We are looking at a state-of-the-art refinery where we have the capacity to refine any type of crude in the marketplace. There are some heavy crudes that can be obtained at a lower price and be refined into different products. This would enable us to have flexibility, as it helps to supply to the market at a lesser price. We have also said that these products need to be of the US and European standards. We are looking at a build, operate and transfer (BOT) basis. 

If we get this new refinery, I think it will serve two purposes; one is energy security and the secondly we can supply a product at a lower price to the consumer. As a Government institute, we are not looking at the bottom-line alone; some of these benefits can be rolled down to the general public. In addition, those savings can be used for infrastructure development. 

Q: What’s the latest progress of the letter of intent signed with the IMF?

A: Well, you can sign these documents, but then it is important to figure out if we can really live up to the expectations. They are expecting us to do certain KPIs, we do our best to fit into that, but we procure and someone else deciding on the price and the taxes doesn’t very much help us to grow. These are basic requirements in a business entity, but if you are a national institute that look at beyond the bottom-line, then some of those cannot apply. 

To start with, our prices are decided by the Government, not us. So, when you have a situation like that, how do you setup a KPI to get a certain amount of profit? It is very hard, but we have looked at certain areas and we have improved, such as bringing in financial discipline. It is about how you do your budget, control it, review quarterly — I am surprised it has not happened before. However, we have now introduced that now for both institutions here and CPSTL. 

A good example is when we took over somewhere in June last year, they were forecasting a Rs. 15 billion loss at a time crude prices were going up, but with this discipline, we turned it around to Rs. 1.5 billion profits in 2017.  This is purely stopping the wastage and controlling your finances, again at a time when crude was going up; if the crude prices came down at that point, our margins would have been a lot higher. 

Q: The Government is still struggling to formulate an energy plan for Sri Lanka with the CEB and PUCSL having different views. What do you think should be the way forward?

A: I think all the stakeholders should come under one roof to have a dialogue, place their concerns on the table and figure out the best formula to go forward. It is important to have an energy policy in place and part of that should be an energy mix. Once we know the proportion of each energy component, then each stakeholder can plan their business such as what investments they want to make and how they want to run the business.

Today, suddenly if you say we are going to introduce LNG, what happens to the pipelines in which we have invested around $60 million? How do we recover that money if we convert it to a plant? It is important for us to have a policy and understand the mix, so that each institution can plan out their strategy. Being in this industry for a considerable time, I think it is imperative to have dual firing power plants anyway because that will give an option to convert if a situation arises. Once we do that, if there are new products coming in, there’s got to be a feasibility study done covering the safety and financial factors. 

If you look at LNG and petroleum; both products are highly inflammable — but LNG burns differently to petroleum, so do we have the capacity to deal with it if a situation arises? Do we have other resources? What are the pipelines we want to have? All these need a feasibility study and it is only then that the Government should implement these plans. 

Countries like the US and China, why aren’t they depending on LNG totally? Because they know what their investments are and want to secure their investments and go for a period of time while transforming into cleaner energy. However, that has to happen scientifically. This is what I see with the policies and it is important that everybody sits under one roof, discusses and comes to some agreement; because eventually the country suffers. 

Q: The endless delay in commissioning new power plants could create an energy crisis in Sri Lanka. Are you concerned about this?

A: I think if we address the issues that we discussed earlier, then that will help everybody. There shouldn’t be any delays or negative factors because everybody agrees on a plan and we run in one direction. When you have different ministries and different institutions in a sector, they can’t run in different directions to win a race; all must run a certain track and win the race.

Q: What do you think the solutions are? How can Sri Lanka find the right energy mix?

A: Start with petroleum for the next 30 years, which is going to be one of the lowest-priced energy products in the market. Based on the information, the US has not had even 30% of its resources, there are other countries which have their resources available; so petroleum is not going to go away. At the same time, there are other new cleaner products which are emerging. Therefore, as a country it is important for us to know how much emphasis we are going to give to these sectors, that again I think has to be done according to a study. 

For example, if we bring in LNG, the infrastructure cost is very high and will be added to the end price of the product. So, if one doesn’t know the end price, they shouldn’t proceed with it. Also, remember for petroleum we have invested so much, thus we need to think if we have recovered that investment. Will it hurt the institute? So those are factors they have to look into. 

Q: If Sri Lanka moves away from thermal power generation, how can it make use of existing investments? 

A: To start with, I don’t think we can move away. It has got to be a gradual reduction if the country is planning to do that, if the whole world is moving to cleaner energy and they do, but it has to be a gradual process. You can’t wake up one day and say, ‘Okay I’m going to have everything LNG,’ that’s the important fact. That is why we again go back to those areas that will help us to take good intelligent decisions. 

In fact we have spoken to the Norwegian Government, because there are some companies which are really good at these studies and can help us develop policies and I think they have in principle agreed to assist us but it is at discussion stage. If that comes through I think we can get an idea about the feasibility of these products.

Q: CPC was seeking international expertise to complete the initial compilation of a policy paper for LNG. What’s the latest update on that?

A: We have already started and that discussion is already in place. In case these discussions with the Norwegian Government fail, then we will look at going in a different direction. But they have in principle agreed to assist us — so that’s a good thing.

Q: How can the CPC move out of its debts? What’s the game plan?

A: We are in debt and again we go back to the same issue. The Treasury decides at what price we can sell our products. At most times it’s below the market pricing and below the purchasing cost. However, when they do that, they are supposed to pay us a subsidy and over a 10-year period it has accumulated to over $ 2 billion. Now, if you take our debt to the two Government banks, our debt and the subsidy that the Treasury owes us is only about a Rs. 70 billion difference. This is due to currency fluctuation of the US dollar, other than that we are not in debt. 

If all the institutes pay us on time and the Treasury gives us the subsidiary that it is supposed to give, then we are not going to be in debt. Thus, I don’t think it’s a fair comment to say that we are in debt. It’s a debt that got accumulated because we didn’t get the money from the Treasury. We can’t say, ‘Okay we can’t supply fuel to the country’. We can’t stop this process because everything runs on fuel. If we don’t supply fuel, the country’s economy falls. We have that responsibility to supply fuel whether the Treasury pays us or not, to ensure that there is continuous supply of fuel to run the country. We have kept doing that over a period of time, but I think it’s important for everybody to understand that it has nothing to do with what the institute does, it’s how the structure works.

Q: The Petroleum Resources Development Minister recently mentioned that it’s high time the Government decides whether it is going to run this business as a social obligation or as a profit-making entity. Have you had any discussions on that with the Government?

A: I fully endorse that comment from the Minister. He keeps mentioning this at all important meetings, but there is no final decision on it so far. Some have a view that we should run like a national institute. If that’s the way, then I can execute my business plan. However, since CPC is a public institute, the Government should tell us what they want us to do. 

The business volume we do here is huge, but still the CPC look at documents and orders, which shouldn’t be the case. There should be a Data Management System (DMS) to make intelligent decisions, so at any given time we know what the re-order levels are, what quantities we have. This is what has happened to an institute like CPC over the years. It is high time we incorporate technology to make our work more efficient and ensure we have the right calibre of people in the institute to carry out the future business.

For anyone who is looking to get a job with the CPC in the future, we have a requirement that they have to be IT literate. I am working towards that and we now have a team in place looking at all these shortcomings. I think by July they will provide us with a report to make necessary changes and ensure a good system is in place, which will benefit the end users.

Q: How confident are you in implementing such bold transformation measures at CPC?

A: Intelligent decisions are formed because of accurate data. Policy wise I think the Government officials have a big responsibility to ensure that national policies are maintained and it is the same for policymakers. They need to have the correct data to make the correct decisions. When policymakers take decisions, they rely on people who work full-time to provide them with good intelligent information for them to take the right decisions and people like us should give them accurate data to take those intelligent decisions. I am confident of implementing good systems to make this institution better.

Q: Mismanagement and political appointees have been cited as reasons for CPC losses. What are you doing to differentiate and to improve transparency?

A: In finance, we have already introduced a zero base budget with an action plan, with an aim to know that the money is spent only for a particular purpose. This way financial discipline is brought into the system. In terms of our HR practices, we have brought in certain criteria when recruiting people to the institute. We always follow the required and correct guidelines when recruiting them.

Q: After last year’s fuel shortage, how can you assure nothing like that will happen again and what were the key findings of the Amunugama Report?

A: There was a text that went viral and said there was a fuel shortage, but we had enough fuel to supply until the next shipment came in. However, when panic sets in, everybody fills up their tanks, they fill up all kinds of containers they have and so on. Then the usual required amount for a week goes up, resulting in an artificial demand, where our distribution can’t meet that demand. 

When a petrol station finishes its stock of fuel, we have to ensure that there is another load going in, but in a panic situation we can’t cater to that demand. These were also the key finding of the Amunugama Reports. We could have handled it better, but I think we did the best we could at the time. 

Q: The Public Utilities Commission of Sri Lanka (PUCSL) said that there is going to be another Cabinet paper, where it will be vested with more power to regulate the lubricant market. Are you aware of it?

A: Apart from the paper articles, no. I think the regulatory functions happen at the Ministry level and that’s a discussion that should happen between the PUCSL and the Ministry. However, there is no clear demarcation of how they are going to do it, without proper facilities.

Q: The CPC also started to track down all the fuel stations that are selling mixed fuels. What’s the progress?

A: There is an investigation team that’s constantly monitoring. We can’t close down those fuel stations legally because it inconveniences the general public, but we are addressing it in different methods like taking a bond, imposing the need to have cameras and so on. At the same time, when you take kerosene, it’s a subsidised product. When we get the correct information we will increase the price of these products so that these vendors can’t profit off this act. But it is also important to have a proper mechanism to help the people who actually need this product at a subsidised price.

Q: How is the support you are getting from trade unions at the CPC to carry out these operations?

A: They have been good because we have been honest with them. We haven’t had any problems with the unions. Obviously, I would like them to be more worker unions than political unions, so that we all work towards a common goal instead of political goals. I think the trade unions understand that we don’t do politics here. The message was conveyed very clearly when we started operations that the moment they walk through the door, they are all employees of this institute and we don’t welcome politics here. 

Q: What are CPC’s future plans?

A: We have a few business ventures which we are looking at this point, but we aren’t going to take hasty decisions on them. We are going to do our due-diligence on them first. All the projects will be disclosed in the near future.

 Pix by Lasantha Kumara