|The Petroleum Corporation - Desamanya
Charith de Silvas "SAGA"
Comments by a former employee of the CPC from its inception
The story of the take over of the petroleum business by Government as related by Deshamanya C. P. de Silva can by no means be called " a Saga" for the reason that a Saga should desirably be a complete story, as well as a factual story. Mr. de Silvas story is neither complete, nor factual . There are serious errors in his statement, apart from its one-sided presentation.
As a senior businessman in the country today, and as an ex-employee of Caltex he deplores the take over of the oil companies and appears to believe that oil companies and impliedly all multi- nationals, do not make undue profits and that they are benign organizations which contribute to human welfare. He implies that the take over was ill-advised, imprudent and unjustifiable. This is a view that has been intensely debated and discussed at different for a worldwide, especially on the issue of globalization. As far as we are concerned the latest brouhaha centred on the attempted take over of the national heritage at Eppawela .
I would like to present the drama exactly as it occurred having observed it from within, as A former employee of the CPC from its inception. In the course of doing so, errors in Mr. de Silvas statement will also be corrected.
Inception of CPC and initial planning
Mr. de Silva appears to make out that the prime motivator of the oil company take over was the late Mr. G. V. S. de Silva, and that the latter, along with the late Mr. Sam Silva, "convinced T. B. Ilangaratne that the country was being exploited by the oil companies." This is grossly wrong. The take-over of foreign owned sectors vital to the economy had been debated, discussed and analysed for years before that, by trade unions, in the press, by the socialist movements, in the Parliament of Sri Lanka and even in the State Council before independence. This was a conviction that was accepted, not only in our country but in several other countries all over the world including India. Mr. T. B. Ilangaratne needed no"convincing" on this account as this was part of the policy of the political party then in power.
Mr. Sam H. Silva a member of the former elite Ceylon Civil Service was handpicked by government to implement this programme. Mr. G. V. S. de Silva, a lecturer in Economics (with a first class) at the University in Colombo, was at the time of the initial take over in 1961, working as an Economic Advisor to Government. Though he was not a member of the former Ceylon Civil Service, with his brilliant academic record, he would certainly have succeeded at the highly competitive C.C.S. exam had he chosen to join the C.C.S. He preferred an academic career.
The initial plans for the take over were prepared by Mr. Sam H. Silva. Assisting him from the very start were Mr. Lanerolle, (also a member of the former Ceylon Civil Service who at that time was a member of the Ministry Planning Committee), Mr. G. F. P. Withana a highly competent senior engineer in charge of operations, Mr. L.N.T. Mendis, who was in charge of the establishments side of the take over and Mr. Noel Tittawela on the legal side. Mr. P.M.W. Wijayasuriya and Mr. G. V.S. de Silva joined a few months later. This was the original team that created the enterprise.
The drama began in a bungalow rented out at Rosmead Place, where the first negotiations with SOJUZNAFT EXPORT (the Soviet State Petroleum Company) and with ICPA (the American International Co-operative Petroleum Association) were held. The first Chairman of the CPC was Mr. N. E. Weerasooria Q.C. Mr. Walter Wickramasingha a member of the first Board (himself a former Mobil staffer) helped recruit some senior staff from the oil companies. These included Mr. R. S. Wickramasuriya (Rony), Mr. W. P. Gunasekara and Mr. K. K. G. L. (Lucky) Wijetilleke from Mobil; Mr. Jon Vittachi, Mr. Ekanayake and Mr. Wimaladasa from Caltex . The first Finance Manager was to be the late Professor, Mr. Y. A. D. S. Samaratunga, but since he did not assume duties Mr. P. M W. Wijeyasuriya who later became the Auditor General was appointed. Mr. G. V. S. de Silva was not at any time the Finance Manager as asserted by Mr. C. P. de Silva and he joined as a regular Petroleum Corporation employee a few months after the take over, attending to economics aspects.
The planning of the storage and distribution aspects at Kolonnawa and Bull Deposits was under the direction of Mr. Withana, assisted by the ex-Caltex staffers mentioned above. An interesting set of developments was the designing of the logo of the CPC and the determination of Sinhala equivalents of English terms used in the petroleum trade. The logo was designed by Mr. G.K.L. Samarasinghe, who was in the advertising trade and the linguistics done with the advice of Mr. Aelian de Silva and Mr. G V.S. de Silva himself. The operations management from the very start under the direction of the G. F. P. Withana was marked by the utmost effciency and expedition, and he gave fine leadership to his own technical team.
Mr. P. M. W. Wijayasuriyas management of the finances of the CPC was perhaps unequalled elsewhere in terms, not only of precision and. unquestionable professionalism but also in terms of continuous evaluation and assessment of performance, covering all functions ofthe enterprise.
Initial take-over and final monopoly
The first step was the take over of some of the distribution facilities of the oil companies i.e. Over 175 petrol stations throughout the country and some of the bulk storage points in the estate areas, as well as some of the bulk storage facilities at Kolonnawa.
Thus the CPC first entered business as a bulk and retail distributor. The first imports of gasoline, auto-diesel, kerosene and heavy diesel were from SOJUSNEFTEXPORT of the USSR, whose local liaison officer was Mr. Papichev of the USSR Embassy in Colombo and the first oil tanker to bring supplies to the CPC was the "Ivanova" with lubricants coming from the USA through ICPA.
From the outset however it became clear that with the newly established CPC importing refined product at prices substantially lower than those of the oil companies,the position was clearly uneconomic to the country. The question was first raised by the then Governor of the Central Bank in a memorandum addressed to the Minister of Finance on 7th May 1962, which resulted in the submission of a joint Cabinet Memorandum by the Minister of Finance and Minister of Commerce, Trade, Food and Shipping on the "outgoing of foreign exchange for importation of petroleum products in bulk". It was pointed in that memorandum that if Ceylons (Sri Lanka) entire requirements of petrol, kerosene oil, high speed diesel and fuel oil were imported at the c.i.f. prices at which the CPC imported those products Ceylon (Sri Lanka) would effect considerable savings in foreign exchange.
In response, the cabinet directed two ministers to negotiate with the oil companies with a view to reducing the c.i.f. prices of their petroleum product imports into the country. Several discussions with the oil companies were to no avail. The oil companies were adamant that they could not reduce their c.i.f. prices nor could they submit alternate proposals to reduce foreign exchange expenditure on petroleum product imports.
The government finally decided on 27th February, 1963 that the oil companies would be allowed to import petroleum products only on the basis of fixed maximum prices notified by the Import Controller. Those prices provided for a 5% premium on the CPCs c.i.f. prices. The oil companies took the stand that they could not import their products with those ceiling prices. After a series of discussions with the oil companies the government, on 14th March, 1963 decided to allocate to the oil-companies a foreign exchange quota equivalent to the cost of their share of sales but at the c.i.f prices of the CPC subject to certain conditions. The Board of Directors of CPC found that the imposition of the quotas was not workable unless a rationing of oil company sales was introduced together with restriction of oil company imports.
The CPC Board was also of the view that in order to cope with the greater share of imports and distribution the quota system entailed, which was about twenty percent of all products handled by oil companies, the CPC should obtain the use of few more storage tanks at Kolonnawa, about fifty further retail outlets and a few other facilities from the three oil companies. Several discussions were held with the oil companies with a view to arriving at a workable scheme of internal distribution based on the new quotas which would ensure that there would not be any breakdown of supplies in any part of the Island. Despite those discussions no satisfactory workable scheme could be reached. Nor could the oil companies be persuaded to allow even the temporary use of additional tanks required by the CPC to stock its additional
imports resulting from the curtailment of the oil companies imports. On the other hand the oil companies were contemplating a request to the government either for increased quotas or for withdrawal of certain products from the quota system. It was also evident that the oil companies were even not taking steps to decrease their sales according to their restricted quotas. They, in fact, referred to the possibility of a shortage if the steps proposed by them were not adopted by the government, which was a threat.
In the light of those developments the Government reviewed the whole position and after a careful examination of the various proposals put forward by the oil companies and the CPC, government decided on 5th June, 1963 that there was no satisfactory scheme to achieve the twin objectives of conserving foreign exchange and ensuring an uninterrupted supply to consumers except to make the CPC the sole importer and distributor of bulk petroleum products with effect from 1st January, 1964.
Accordingly the Ceylon Petroleum Corporation Act No. 5 of 1963 was enacted and became law on 22nd August, 1963. Like the principal Act, the subsequent legislation too was passed unanimously by the House of Representatives.
Mr. C. P. de Silvas statement that Mr. Sam H. Silva and Mr. G.V.S. de Silva were both sacked or sent out of the CPC because they were "Philips men" is a gross mistruth. At the time of the complete take over both had left on their own. Mr. Sam Silva left on April 29, 1963 and Mr. G.V.S. de Silva left on July 01, 1963. Nor did the final takeover occur under the aegis of Mr. Felix Dias Bandaranaike.
The CPC then embarked on the task of ensuring supplies of all petroleum products for the countrys total requirements. Petroleum products continued to be imported from the Soviet Union, Rumania and even from Egypt and Iraq. All these supplies were in terms of Government to Government bilateral trade and payments agreements. The only purchase outside these agreements was the import of lubricants from ICPA of USA.
From the very start, with the partial take over of import and distribution in 1961 as well as the monopoly take over in 1963, it became clear that rather than continue to import refined product, it was much more economic and sensible to import crude for refining here. As a matter of fact even the oil companies themselves had mooted this idea as far hack as 1955.
Serious plans for the refinery began in 1962, itself. The Italian state enterprises, ENI, (Ente National Indro-carburi) made a proposal based on equity participation. Turn -key proposals also came from others as well. The CPC commissioned the French Petroleum Institute to prepare a feasibility study which was completed by them by 1963.
An amendment to the Ceylon Petroleum Corporation Act of 1961 made in August 1963, also granted the CPC monopoly rights over exploration refining and processing. International tenders were called for the construction of a refinery and the tenders were evaluated by both the French Petroleum Institute and by the Egyptian General Petroleum Corporation with UOP, (Universal oil products) of USA acting as advisors. The tender evaluation was carefully reviewed by Mr. K. Alvapillal a senior member of the CCS with a distinguished record and who after retirement as a Permanent secretary had been appointed to succeed Mr. N. E. Weerasooriya as Chairman CPC.
The contract for the construction of the refinery was awarded to Messrs. Snam Progetti of Italy and the foundation stone was laid on 9th May, 1967 at the 165 acre site at Sapugaskanda by the then Prime Minister, the late Hon. Dudley Senanayake.
The start-up of the distillation unit of the 38,000 barrels per stream day refinery commenced with crude oil circulation on 5th August, 1969 and the "flare" which is an obvious landmark of any oil refinery was lit for the firit time on that day. The refinery was officially declared open by the then Prime Minister Hon. Dudley Senanayake on 12th October, 1969. The total construction cost of the refinery, including cost of land, Customs duties, taxes and cost of infra-structure development was around Rs. 200 million of which the foreign exchange cost amounted to Rs. 125 million. If a refinery with the same capacity and complexity is to be established today the cost would be over Rs. 30 billion. (Subsequently the processing capacity of the refinery was increased to 50,000 barrels per stream day).
The main objective of the government in deciding to set up a refinery was to save foreign exchange spent on the import of refined petroleum products. It had been estimated that about 20- 25% of the total foreign exchange spent on importing refined petroleum products prior to the establishment of the refinery had been eventually saved.
Bunkering, aviation and exports
In 1971/1972 the Ceylon Petroleum Corporation entered the bunkering and aviation business with facilities taken over from oil companies. The foreign exchange earnings from bunkering and aviation during the first five years were Rs. 514 million and Rs. 197 million respectively. The Corporation also exported its surplus products such as Naphtha and Furnace Oil bringing in valuable foreign exchange to the country. Foreign exchange earned on direct exports and sale of bunker and aviation fuels during 1970 to 1993 is given below:
Total foreign exchange earnings (Rs. Millions)
Year Rs. (Mil.) Year Rs.(Mil.)
1970 57.0 1981 3,414.7
1971 94.9 1982 3,256.3
1972 87.6 1983 2,760.5
1973 137.9 1984 3,319.9
1974 360.1 1985 3,887.0
1975 394.0 1986 2,379.1
1976 516.6 1987 2,612.6
1977 892.5 1988 2,309.4
1978 963.2 1989 2,452.3
1979 1,976.4 1990 4,039.2
1980 3,127.9 1991 3,386.4
The total capital contributions made by the government to the Corporation was Rs. 117.8 million . Contributions made by the corporation to the exchequer by way of Customs duty, Turnover Tax, Income Tax. Contributions to the Consolidated Fund, Dividends and Special Levies for the period 1972 to 1991 amounted to over Rs. 42,000 million, i.e. the Corporation had paid back to the Government 35,500% of what it received from the Government. The Corporation had been making sufficient profits up to 1993 except for the periods 1975-1978 (subsidized by the Government) and 1987 to 1989. The subsidy received from the Govemment in 1970s was recovered by the Government in the years 1986 and 1987. The Corporation did not burden the low-income group of the community in the sale of kerosene. The price of kerosene was subsidized and the loss the Corporation incurred in the kerosene subsidy during the period 1982 to 1992 was Rs. 4025 million.
The foregoing is a factual statement involving a "view from within" -
Deshamanya C. P. de Silva, as a Professional Accountant, might have checked his figures
thoroughly before embarking on composing a Saga. In referring to persons like Mr. Sam
Silva and Mr. G.V.S. de Silva who are no longer living he might have been more prudent in
making statements involving them.
|NEWS | POLITICS | DEFENCE | OPINION | BUSINESS | LEISURE | EDITORIAL | CARTOON | SPORTS|