PARLIAMENT

'Hedging agreement signed jointly with city banks'

Sandasen MARASINGHE and Disna MUDALIGE

Speaker Chamal Rajapaksa presided when Parliament met at 1.00 p.m. Yesterday. After the presentation of papers and oral questions, Irrigation and Water Resources Minister and Leader of the House, Nimal Siripala de Silva, presented the Order under the Excise Ordinance and the House approved it. The House took up the adjournment motion moved by DNA MP Anura Dissanayake for debate.

Anura Kumara Dissnayaka (DNA): The Petroleum Corporation had been incurring heavy losses for the past few years, due to inefficiency and corruption.

The government has been unable to carry forward the power sector as one unit. Recently, the Petroleum Corporation had stopped supplying oil to the Kerawalapitiya Plant. If it was under the same Ministry, this would not have happened.

The CPC was now selling 152 million litres of petrol, 171 million litres of diesel, 15.5 million literes of kerosene oil, etc. The CPC annual turnover was Rs 840 billion.

It was one of the largest institutions in the country.

It was important when the economy and the national security was concerned.

But the CPC does not have a general manager. It should have three deputy general managers, but there was only one and also the CPC does not have a marketing manager.

There had been a financial crisis in the CPC. Government institutions were indebted to the CPC by millions of rupees. Corruption and improper management of the finances had caused a heavy burden on the people of this country.

Ravi Karunanayake (UNP): The oil hedging agreement was affecting the economy of the country and the Supreme Court had ordered to cease to continue with the agreement. But the government had not acted in accordance with the directions.

Petroleum Industries Minister Susil Premajayantha said that the Hedging agreement was signed jointly with four city banks. However he said the government was already aware the instrument of hedging agreement was inappropriate. Eventhough an agreement was met concerning the oil price escalations, there was no agreement taken if prices of oil ndecreased. This was discussed even at the COPE.

At the moment commercial High Courts in London had still not given a ruling about the issue. However, the total amount was less than the assumptions of MP Ravi Karunanayake.

I do not wish to go further on this issue as cases are pending in International Courts. If we were to go into detail, the entire debate would be subjudicated. There were so many petitions in our courts in that regard. MP Ravi Karunanayake and a Buddhist monk filed one petition, while a leading businessman filed another. Likewise, a number of petitions had been filed against the hedging agreement.

Ravi Karunanayake (UNP): We were making this request on behalf of our country. Did the government give permission for the hedging fraud? There were many mistakes relating to this issue.

Now the government was boasting about its agreement with Iran, regarding the purchase of oil.

However, ultimately all these would contribute to a heavy debt on the country.

Power and Energy Minister Patali Champika Ranawaka said the Opposition tried to show the crisis taking place in the Petroleum Corporation due to corruption, bribery and inefficiency in the Corporation. The Petroleum Minister was ready to reply to this claim in a proper manner.

I must note that this was a crisis that any government in power had to tackle carefully.

At present, 43 percent of the energy was generated by fossil fuels in the country. In 1990, this percentage was 19 percent and in 1970, it was 6 percent.

Due to the escalating demand, we had to go for other options in addition to hydro power. However, we should remember that the world fossil deposits were enough for only another 40 years.

Therefore, we are unable to expect a decrease in petroleum prices in the near future at any cost. The world energy demand was higher than the capacity of world fossil fuel deposits. Therefore, every government would have to face the oil crisis which would be felt severely in the future.

A challenge was before us to move for alternatives for the generation of power instead of solely depending on fossil fuels.

The oil crisis should not be taken for political advantage. We have to promote renewable energy sources in the country. As the Power and Energy Ministry, we have also engaged in a process to introduce a more suitable system of power supply to the country.

Promotion of renewable energy sources would also contribute for environmental conservation and in turn would ensure a better future for our children.

When the proposal for coal power was presented in 1988, many were against it. However, we could have provided a power unit more cheaper if this coal power plant was initiated at that time.

Then in 1997, this proposal was once again discussed, but could not be initiated due to protests. During those days, the generation of power from coal was cheaper. However, gradually the coal prices were also going up in the world and we had to purchase coal at a higher price. Until 2000, the Electricity Board had been incurring heavy losses. Therefore, it had to depend on the aira of the People's Bank. Taking corrective measures, we have handed over the debt until December 2009 to the Treasury. Thereafter until today, the Electricity Board has been strengthening itself.

Our future depends on the green energy. We have to take necessary measures regarding this move.

Kabir Hashim (UNP): Said the government should be exemplary in its work when dealing with the crisis.

The Hedging agreement was a technical instrument used for the management of our economy. As we heard, the government had been ordered to pay staggering 94 million dollars as a result of this agreement.

When hedging was signed by the Petroleum Corporation, LIOC also made several agreements with certain banks. However, LIOC had been able to manage the situation carefully and overcome the situation.

It was a problem of the Government that it did not know how to use the instrument properly. The Government should have been aware of risk management strategies.

Social Services Minister Feliex Perera said that there was a crisis in Egypt and in the Middle East countries and the situation had been controlled. He said Libya had not been able to solve their problem and their production of 16 hundred thousand barrels of oil, had decreased to 3 hundred thousand.

Japan he said had decided to allocate US$ 300 million for the reconstruction of Japan after Tsunami destruction. They have also decided to resume the use of oil.

So the demand for petroleum would be increased with a price increase of petroleum. Even in Sri Lanka, the demand for petroleum had risen due to release of North and East. We have been able to refine 40 percent of our needs and we have enough room to develop our refineries.

Gayantha Karunatilake (UNP) said the inefficient management of the CPC had put a burden on the people. At its outset we had warned the Government of its oil hedging agreement and its bad effects.

But the Government, he said, did not heed our advise. So now we had to pay an extra amount of money as a result of this hedging agreement. Still according to my knowledge the people of this country have to pay another US$ 800 million.

Deputy Chairman of Committees Murugesu Chandrakumar takes the Chair

Eran Wickramaratne (UNP): The magnitude of the loss of the oil hedging was due to exercising powers without responsibility.

There was an impact on the people of this country by the loss incurred by the oil hedging agreement because of the magnitudinous of the loss suffered by the CPC.

S.Sumanthiran (TNA): When the oil hedging agreement was brought before the Supreme Court, it had been revealed that those contracts were signed without proper authority.

M A Sumanthiran (TNA): The public had been deprived of the benefits in the drop of oil prices in the global market. The government attempted to show the country that there was no function of the Court in this regard. However, the country had to pay a large sum of money as a result of this issue.

Petroleum Industries Minister Susil Premajayantha said that he would try to respond to the questions raised by the members of the House.

In our oil refinery, 38 percent of the outcome was furnace oil. After the modernization process of the oil refinery, the 38 percent would be refined once again and the outcome would increase the percentage of petrol and diesel. We wish to continue the modernisation process of the oil refinery while preserving the rights of the Petroleum Corporation.

The price of a barrel of oil in the world market has now reached US $ 112.5. This was a considerable escalation of oil prices.

The total average cost of a litre of petrol amounts to Rs 132.90. However, we sell a litre of petrol at Rs 125. The cost of a litre of kerosene was Rs 115. However, we sell a litre at Rs 61. The same process had been applied to other varieties such as super petrol, diesel and furnace oil. Therefore, we are already selling oil at a concessionary price to the public.

The Corporation was suffering a loss due to this process too. What I wanted to show was that the loss by the Corporation was not due to the hedging agreement.

I would also like to point out that the prices of oil in India was higher than ours. People started protesting in Philippines due to the increase of oil prices several times. The modern crisis in the Middle East countries had resulted in the escalation of oil prices in the world market.

Several Opposition members in this House dedicated their speeches to the hedging agreement. This agreement had been reached without due authority.

As said by an Opposition member, this agreement was made with the aim of 'one winner'. The Chartered Bank had misled its customers. It had violated banking ethics.

In an arbitration process and cases pending at Commercial High Courts in London, we had attempted to show the actual circumstances, hoping to receive a fair decision. The Sri Lankan government was taking measures to avoid a disadvantage to the country. I was holding the reins of the Petroleum Ministry in the year 2004-2005. During that year, I managed to obtain a profit of Rs 4,000 million.

But when I assumed duties once again, a huge debt had to be settled. I am trying to settle this amount gradually.

The Minister said that there was an IRD in Anuradhapura which had been there for a long period. The Vavuniya IRD which had been closed, had been re-opened. The stores were owned by the CPC. Only a sum of five cents had been paid per litre and it was for storage purposes.

The houses had been built on pipes by which petrol had been pumped to Kolonnawa.

This was unauthorized constructions. The lands belonged to the Railway Department. About 400 houses had been constructed on them. We were taking measures to solve those problems.

The other matter was the price hike of petroleum. Earlier, although the price of petroleum had gone up in the world market, the CPC had not increased the price as it was hoped that it would come to normal. Earlier we were engaged in bunkering.

We were able to sell 80,000 tons, but later it had reduced to 30,000 tons. It was also done by private companies. If we were able to start bunkering again, we would be able to earn foreign exchange.

Our vision was to expand and renovate the refinery at Sapugaskanda.

When petrol was being imported, it took nearly 6 days to unload a ship, which really had to be done in 3 days.

So we were made to pay an extra US $ 120,000. Now we have been able to save that amount by providing security with the support of the Navy.

It was our government that made the CPC a corporation and we have the responsibility to protect it.

Therefor the problem arose not due to the oil hedging agreements, but the crisis in the world market.

Parliament adjourned until 1 pm today.

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'Overtime payments to be investigated'

Petroleum Industries Minister Susil Premajayantha stated in Parliament yesterday, that a comprehensive investigation would be conducted into the allegation of paying unlimited overtime payments to the security officers of Ceylon Petroleum Storage Terminal (CPST) who have been deployed at the Petroleum Ministry office.

The Minister responding to a query made by DNA MP Anura Dissanayake at the adjournment debate, said that necessary measures would be taken to punish the offenders after investigations.

He also said that CPST Security officers were deployed for the security of the Ministry office since police personnel could not be deployed for this purpose.

However, he said that a proper investigation would be conducted over the unlimited payment of overtime to them.