With the aggravating fuel shortage and economic collapse, Sri Lanka is one of the countries where an unprecedented economic crisis has unfolded, following the path of Greece, Lebanon and Argentina. Though the hopeful citizens of the country still hold on by adapting themselves for the alternatives available such as using fuel-free transportation methods like cycling and using firewood instead of gas to cook their meals, the flaws of the alternatives still draw them back to the reality of a fast-collapsing nation.
When a few women from a housing complex in Modara came forward and explained the difficulties that they go through, to prepare a meal using the available alternative; firewood, Singularity Sri Lanka, came up with an existing concept that can be used to combat the fuel shortage crisis, but the Sri Lankan stakeholders’ attention towards the concept seems to be far out of the reach.
In Crude Intermediation, crude oil or any other kind of fuel will be bought from a country or an international organisation. The financial process of bringing fuel into the country will be undertaken by a special purpose vehicle (SPV) and handed over to an internationally-recognised investment bank or a commodities brokerage company.
When Ceylon Today looked whether such system can be implemented under the system of Sri Lankan Government, we found out that on 26 April Co-Cabinet Spokesman Dr. Ramesh Pathirana said that Cabinet had approved amending the Petroleum Products (Special Provisions) Act, No. 33 of 2002, to include provisions for issuing licences to ‘properly identified parties.’
He said Cabinet approved the Minister of Energy’s proposal to advise the Legal Draftsman to amend the Petroleum Products Act (Special Provisions).
He said during the weekly Cabinet briefing that these steps will be taken to allow them to import fuel for sectors such as electricity, fisheries, and exports.
Over-dependency on fuel
Meanwhile, talking to Ceylon Today, Singularity Sri Lanka founder Manju Nissanka stated that since all economic activities in the country rely on fuel, it has been determined that it is appropriate to grant licences to specific sectors of the economy to import and use the fuel they require on an individual basis.
Nissanka, recently, put forward a number of proposals to help Sri Lanka pull through the prevailing economic and social crises through short-term and long-term strategies spanning over ten years.
A short-term measure suggested by Nissanka, which is expected to be achieved in three months, is normalisation of supply of refined products.
The roadmap Nissanka presented aims to take the preliminary steps to address the country’s energy crisis within six months. Under the theme ‘crude oil supply normalisation’, he explained that Sri Lanka should pay attention to the concept known as Crude Intermediation, which he said is a tested and commonly used model, globally.
“What this concept means in this context is, divorcing completely the financing aspect of the process of refining crude oil. We can entrust that task with a Special Purpose Vehicle (SPV), which, in this case, refers to businessmen/entrepreneurs who have vested interests in both US Dollars and Sri Lankan Rupees. They are not joining this process at present because crude intermediation is currently a procedure managed solely by the Government and they do not have any trust in the Government. Under this programme we are discussing, SPV will be managed by a reputed, private investment bank, and all investments and returns could be obtained by investors with no obstacles,” he added.
“One may ask how, in that case, Sri Lanka pays Ceylon Petroleum Corporation (CPC) employees. That is a decision the Government should take. SPV pays a fee for using our refinery, and through that fee, the Government should manage salaries and other payments. At this moment, we have to ensure that we have an undisrupted supply of crude oil. Crude Intermediation is the best model to achieve that,” said Nissanka.
Nissanka further said these efforts are estimated to cost USD 750 million, and expressed confidence about collecting this money.
He added, “However, all these things we are discussing are possible only if a new government that has the people’s confidence comes to power. They cannot be implemented under the incumbent Government, because this Government does not have the investors’ confidence. We will only be able to implement these steps through a new, stable government that comes to power through an election.”
He added that managing the essential food and medicine crises is also a target that is expected to be achieved within six months.
Moreover, according to the roadmap presented by Nissanka, Sri Lanka should pay attention to several long-term objectives too.
It said that within a year, Sri Lanka should try to restructure all short-term debts, partially eliminating planned power shortages, and achieving USD five billion capital raise with USD one billion reserves. Within five years, according to the roadmap, the country should try to keep or decrease inflation under five per cent, while continuing to build foreign reserves to exceed USD 10 billion. In addition, Gross Domestic Product (GDP) exceeding USD 150 billion marks, gaining a credit rating higher than BB+, and achieving a GDP growth rate of over eight per cent, are among the objectives Sri Lanka should strive to achieve in ten years.
Meanwhile, crude intermediation was discussed in another context during a recent media briefing. The event focused on the hardships faced by people living in urban areas of Colombo when it comes to cooking due to scarce supply in fuel and liquid petroleum gas (LPG), and how crude intermediation could help address the overall supply of them.
The Government should ease the market restrictions and facilitate Crude Intermediation as a solution to the present fuel crisis, especially the kerosene shortage, Singularity Sri Lanka addressed.
Nissanka said Crude Intermediation has been suggested to the Government in few forums as an alternative solution to the existing fuel crisis, yet it has fallen on deaf ears.
“We suspect that if this method is implemented, the Government and the public sector authorities fear that their corruption will come to light. Therefore, they ignore at least trying this method as an alternative to solve the issues of the working class who have been spending days in fuel queues just to find gas or kerosene to feed their families and children,” he added.
“To do this, the present market restrictions should be relaxed. At this juncture, the Government has no money to import fuel. Crude Intermediation is a perfect solution for this situation. If this method is implemented, the fuel crisis could be resolved within a few months. The private sector, which has dollars to invest and import fuel, can invest in this, while the Government can handle distribution and other aspects. Consumers too could buy fuel without standing in long queues and falling victim to black market prices,” Nissanka pointed out.
During the event, several persons spoke of the community kitchens set up by Singularity Sri Lanka in several urban areas of Colombo, and a woman residing in Sathhiru Sewana Housing Complex in Modara described the difficulties faced by her community due to the fuel and LPG shortage.
“Since kerosene is not available, we had to shift to firewood. But, it is difficult to use firewood in housing complexes. Due to use of firewood, various issues arise. Children cry when the smoke goes into their eyes, and school uniforms get blackened. There are many issues in housing complexes when it comes to cooking. But, no one pays attention to or discusses them. It is difficult to prepare even one meal a day and the people find it extremely difficult to do even that. Sometimes, even firewood is not available. To buy kerosene, we have to wait in queues for four to five days. Sometimes, we have to obtain tokens, but those are also limited. Some sell tokens for Rs 500. Fuel station gives only five litres of kerosene per person. We have to use it for two weeks, but even that is becoming difficult,” she added.
Nissanka who addressed the media noted that, even if those in housing complexes purchase dry ration and essential food items they cannot prepare a cooked meal, due to the lack of LPG and kerosene.
“The solution to this fuel issue is a tested and proven method called crude intermediation. At the moment, we cannot import fuel due to the USD shortage, and no one comes forth because of difficulties in opening Letters of Credit (LCs). This is not a matter of price. Any person would like to purchase LPG for market prices. But there is no supply. Many said if kerosene is made available, they would be able to prepare their daily meals,” he added.
No trust in Govt
In crude intermediation, financial aspects of refining fuel are completely removed from these operations.
“If Sri Lanka’s economy falls, there is no way for them to continue business. They have expressed willingness to invest in SPV through the private sector, as they do not have trust in the Government. They can get their income through the SPV. This has dual benefits, namely, this will end fuel queues, and investors can make reasonable profit in a short period. Other countries have tried this model, but Sri Lanka is not yet familiar with it. We have been suggesting this to the Government through open fora, yet no official has made a single inquiry in this regard,” he added.
Nissanka stated that if the Government cannot employ this method for petrol and diesel, we can at least try to do it for kerosene, as it is more important to the people, especially those in low income groups.
“In my opinion, the reason why Sri Lanka has not yet explored market liberalisation or opted for crude intermediation is because of private deals with private institutions that are involved in fuel related activities with the Government. We have a reasonable suspicion that not only politicians but also officials in public institutions engaged in importing fuel may also be involved in such deals,” he added.
When Ceylon Today inquired from Energy Ministry Secretary Mapa Pathirana his idea about Crude intermediation, he responded stating that he is fed up with media inquiries, and ‘passed the ball’ to Ceylon Petroleum Corporation (CPC) citing that such inquiries should be made from CPC instead of the Ministry adding that the Ministry’s role revolves around policies and related concerns.
Ceylon Today’s effort to reach out to CPC’s higher authorities was futile since they were not even agreeable to have a telephone discussion.
So far, the attention that was paid by the public officials to the concept of crude intermediation seems to be below zero level, while long queues for fuel and essential commodities have been exacerbating day by day.
By Nabiya Vaffoor