Business sector offers policymakers plan for CPC reform – The Island

by Sanath Nanayakkare

A plan of opportunities, challenges and the way forward for the loss-making Ceylon Petroleum Corporation (CPC) was unveiled by JAAR Corporate Solutions at Taj Samudra Colombo last week.

In addition, JAAR offered potential public-private partnership (PPP) models for the financially-struggling CPC to turn around.

Policy makers, professionals, investors, economists and others well aware of the major reforms needed for the indebted CPC discussed why Lanka Indian Oil Company (LIOC), which is the sole competitor in the fuel retail market in Sri Lanka, has almost continuously made a profit since its incorporation in Sri Lanka, while the financial situation of CPC has been a serious concern for its stakeholders.

The plan announced by Dr Janaka Fernando and Andreas Hergenröther was presented to Energy and Energy Minister Kanchana Wijesekera, SJB MP Dr Harsha de Silva and a number of personalities, for an open discussion at the forum .

Both politicians made comments in favor of privatizing CPC while ensuring quality of service, price accountability and uninterrupted fuel distribution.

The discussion focused on CPC’s financial statements over the past 10 years, its product and service portfolio, market structure, employment, benefits, key performance indicators (KPIs), a comparison of Lanka Indian Oil Company (LIOC) and CPC using numbers, major contributors to losses, proposals for suitable PPP models for potential investors and policy recommendations for the Government of Sri Lanka.

Here are some observations made by Dr. Janaka Fernando and Andreas:

“The CPC provides a substantial source of revenue and expenditure for the government being one of the largest state enterprises. However, the CPC has become a heavy burden on the Sri Lankan government and economy due to its poor performance. CPC’s total debt has grown at an alarming rate over the past few years.

“The amount of CPC debt, which was Rs. 529 billion at the end of 2020, increased to Rs. 561.3 billion by the end of 2021, and the amount increased further to Rs. 700 billion by the end of 2020. July 2022, the highest level of debt for a public company in Sri Lanka. At the same time, the CPC accounted for 37.3% of the outstanding public guaranteed debt of state-owned enterprises in Sri Lanka. Moreover, the cumulative net loss of CPC at the end of 2019 was Rs. 337 billion. This will increase further with the net loss of Rs 82.2 billion incurred in 2021 and is expected to increase further in 2022, according to CBSL 2021.”

“In contrast, LIOC, which is the only competitor in the fuel retail market in Sri Lanka, has continuously made a profit since its incorporation in Sri Lanka except for a few years. LIOC recorded Rs. 998 million in pre-tax profit for the year ending March 2021, as well as positive retail revenue of Rs. 12.3 billion at the end of March 2021.”

“Many countries around the world increasingly rely on the private sector to invest in infrastructure services. PPP is not an unknown concept in the oil industry in Sri Lanka. The oil market, which was nationalized in 1961, has seen seven successful PPPs since the early 1990s. However, before identifying potential PPP models for CPC, it is necessary to understand the scope of CPC in the process of oil distribution in Sri Lanka. There are different forms of PPP models available, and choosing an appropriate method depends on the nature of the particular public company and the project under consideration.

JAAR Corporate Solutions has made the following policy recommendations to the government, for CPC to achieve and maintain strong performance:

a. Discuss openly with all stakeholders such as government, trade unions and potential investors sector-related PPP models and privatization.

b. Evaluate and reduce subsidies

vs. Minimize currency risk

D. Increase liquidity

e. Introduce a transparent pricing mechanism that covers all costs

F. Breaking the aviation fuel monopoly

g. Allow pricing and free competition for fuel suppliers while enforcing transparent anti-trust legislation

h. Increase transparency and good governance

I. Minimize production risks

J. Increase storage capacities

k. Increase the efficiency of human resources