Oil prices falling but CPC signs long-term deal

Against the backdrop of plummeting world crude oil prices, the Ceylon Petroleum Corporation is extending forward contracts with two Singapore-based companies for the import of fuel. This is being done on the basis that long-term arrangements are essential to ensure supply stability in view of turmoil in West Asia and procurement issues arising from United States’ sanctions on Iran.

Two Cabinet memorandums in this regard were presented by Petroleum Industries Minister Anura Priyadharshana Yapa. They sought to extend the existing term contracts with Petrochina International (Singapore) Pte Ltd by one year and Emirates National Oil Company, Singapore by 15 months.

Specified quantities of gas oil, gasoline and jet fuel will be bought by CPC at fixed prices throughout this period. The long-term contracts are being entered into against the backdrop of plummeting crude oil prices caused by a variety of factors, including oversupply in the world market. According to the Cabinet memorandum, the price of oil is fixed on the basis of the monthy average price in the Singapore market plus a premium ranging from US$ 1.72 to US$ 3.72 per barrel. The move would mean that Sri Lanka will not benefit of a possible drop in oil prices.

Oil-price.net, an online resource, predicts that current price falls are set to continue. “A fall to $80 (per barrel) seems likely over the next year,” it states. “A rush to develop oil production in Europe could even see the oil price fall to $60 a barrel if Denmark is going to find a market for all its Arctic oil.”A term contract explicitly describes a fixed duration that the agreement will be in effect. The signing parties are obligated to adhere to the terms and conditions within the contract until expiration, or end date, of the contract.

Mr. Yapa told Cabinet, “It was considered that the current turmoil in the Middle East (West Asia), in particular, the conflict in Iraq, in addition to sanctions related issues affecting Iran, has created supply instabilities in general. Therefore, it is important to have long-term contracts for petroleum supplies to ensure supply stability and to avoid supply interruptions.”
The Government earlier took a policy decision to increase oil procurements based on term contracts “since world oil markets prices face continued variations and sometimes high premiums have to be paid for spot purchases”, according to the CPC’s 2013 Performance Report, presented to Parliament recently.
“The uninterrupted fuel supply will also be ensured through the procurements based on term contracts,” the report said. “Therefore, long-term agreements have been signed with several companies to procure the petroleum products.”
With the expiry of earlier term contracts, the two Singaporean companies had made proposals to the CPC to extend the agreements. The memorandum pertaining to Petrochina reveals that the CPC Managing Director had been instructed by the Special Standing Cabinet Appointed Procurement Committee to negotiate with the company “for further price reduction”.
Petrochina accordingly reduced its premium for gas oil and gasoline but “increased interest rate marginally”. Twelve combined cargoes of gas oil and gasoline will be purchased in this manner. With regard to Emirates National Oil Company, the fixed premiums indicated in the earlier contract in respect of gas oil and Jet A-1 “remain unchanged”. The premiums are not specified. Twelve combined cargoes of gas oil and jet fuel will be delivered during the contract period.
The two companies in question have had issues about previous supplies to Sri Lanka. In October last year Sri Lanka returned 30,000 tons of gasoline supplied by Petrochina as the quality of the cargo did not meet the specifications while in 2011 a stock supplied by ENOC was found to be contaminated.

May be another hedging deal ?

How can we believe present ministers

Most of them work for personal gains than the country

Even they do genuine work how can we believe them ?

This type of cabinet peppers usually initiated by local agent of foreign suppliers That is my experience in the public sector

An interesting article on oil price movements, from Bloomberg:

http://www.businessweek.com/articles/2014-10-23/oil-saudi-arabias-risky-price-play#r=rss.

I will expose more corruption: Champika

Energy Minister Champika Ranawaka said that he was prepared to expose more large scale frauds and corruption in detail, in the electricity and petroleum sectors involving billions of rupees.
Addressing a gathering at the launch of his book Power and Power at the Blue Sky Hotel in Kurunegala on Saturday, he said that government was unable to give concessions to the people in respect to the petroleum prices and the electricity cost due to a few people who dominate these sectors.

He said that he has not included some details of corruption in the electricity and petroleum sectors in his 1060 page book.

He said that he had the opportunity now to reveal those withheld parts after certain remarks made by certain people recently.

The meeting was organised by the Kurunegala District Organisation of the Jathika Hela Urumaya, the Minister stated that not all in the Ceylon Electricity Board (CEB) or Ceylon Petroleum Corporation (CPC) were corrupt, though there seems to be such a perception among the people in the country.

However, he added that large scale fraud and corruption that could harm the national economy had been taken place in these two institutions and that he had exposed them in his book.  

“An issue has been cropped up on the importation of coal to Sri Lanka which I have not included in my book, but now I have the opportunity to expose the matter, since certain officials, the politicians who run behind those officials, casino owners and certain media run by those casino owners are of the view that they could control the politics of the country and assassinate the characters of national leaders,” the Minister stated.

Mr. Ranawaka said that the slogan of the people in any election should be that “we will pay only our bills and not those of others’.” Electricity consumer is not prepared to pay others’ bills and bear the burden of others’ sins, he added.

The Minister said that one would be able to plunder five billion rupees by setting aside one rupee per one litre of petroleum through manipulation, since the country used five billion litres of petroleum per year.

He therefore stressed the need to have a powerful technical audit process and a process to end the state of impunity in economic field.(Pushpakumara Jayaratne)

http://www.dailymirror.lk/55165/i-will-expose-more-corruption-champika

Exposing large scale frauds & corruption related to imports, processing & distribution of raw oil, is insufficient. Revelation should be presented to public identifying real culprits & disclosure of names & position held before the conviction together with entire loss to nation coffers. Sooner the better, later culprits will reside abroad having a new citizenship.