By Faraz Shauketaly
Growing unease that the latest purchase contract for Gas Oil by the Ceylon Petroleum Corporation has gone against the grain of the approval granted by the Cabinet of Ministers, has prompted Petroleum Minister Susil Premajayantha to seek clarification from CPC officials – after The Sunday Leader pointed out some glaring deficiencies and deviations to the original requirement.
The unease started when Ministry Secretary Titus Jayawardena prepared the Cabinet Paper seeking approval for the purchase of 240,000 metric tonnes of Gas Oil which they stated was for a three month supply. Immediately the approval was granted and the purchase awarded to the supplier, the industry started looking at the details of a deal that is set to cost the Treasury far more than what appears on paper.
The Minister told his colleagues in Cabinet that the average price paid previously had been Singapore PLATTS plus US$ 2 and above. He assured members of the Cabinet that the price negotiated this time was very competitive at US$ 1.60 over the mean Singapore PLATTS price. PLATTS is the standard used in the oil industry and for this region the mean is the PLATTS Singapore price. He also stated that the CPC had sought prices from the UAE, Oman and Petronas Malaysia. Within the ambiance of the cabinet paper ref 05/2011 of 6th April 2011, that stated that this was to be on a government to government basis, it was inferred that the CPC had also sought quotes from the governments of UAE and Oman. However when we asked Minister Premajayantha about this, he clarified the matter by stating that the prices were requested from the various national oil companies of those governments and not directly from those governments per se. Titus Jayawardena, the Ministry Secretary clearly displayed an appalling lack of clarity in preparing his Cabinet Paper which is designed to guide the members of the Cabinet as well as his own Minister.
Unusually for the potentially large order, there were no offers from the UAE, Petronas or Oman. The offer was from ENOC in Singapore – which on the face of it was again a deviation from the Cabinet Paper, which specified ENOC, UAE. Minister Premajayantha when asked about this deviation, told The Sunday Leader that ENOC Singapore was the trading arm of ENOC UAE and that in itself was of little significance. However when the Minister told his colleagues that the price obtained was “competitive” it is now questionable as to how Secretary Titus Jayawardena was able to advise his Minister that these prices indeed were competitive. In fact, the details of the negotiations reveal that there was no attempt to negotiate the price with ENOC Singapore – the price quoted was accepted without resorting to a full international bidding and tender process in which some analysts point out the Sri Lankan CPC may well have obtained US$ 1 plus Singapore PLATTS for the quantity ordered. Additionally the same industry sources pointed out that had Sri Lanka’s state oil company gone to the international market they were likely to have obtained an interest rate of LIBOR plus 2.70 instead of LIBOR plus 2.96 which was obtained through ENOC Singapore. The interest was applicable as the CPC wanted a credit period of 180 days for settlement.
Very worrying for transparency and probity and the integrity of the officials who concluded this transaction including one member who is reported to have worked for ENOC Singapore. The Cabinet Memorandum states that ENOC Singapore had agreed and accepted standard CPC terms and conditions.
The reality is far different: there are at least six significant variations to the standard Terms and Conditions which ENOC Singapore is supposed to have accepted. These are:
CPC always goes for a price that is based on a 30-day average. This insures against short term fluctuations likely to be caused by the volatile nature of Middle Eastern politics and short term price fluctuations. Even though ENOC Singapore purportedly accepted standard CPC conditions, they did not agree to a 30-day average price. Instead they went for a five-day average price
In terms of delivery ENOC requested that in the event they have to deliver to Muthurajawala, the CPC would need to permit them to use vessels with a moulded depth of 19.7 metres. This is completely at odds with the safety standard of a maximum of 18.2 metres which is what is recommended by the SPM buoy manufacturer and accepted and practiced by the CPC and its subsidiary CPTSL. In the past, vessels larger than 18.2 metres have been the cause of damage to the hoses and the buoy itself due to drag and other factors. If indeed ENOC plans on using vessels with a depth greater than 18.2 metres the Minister would need to establish just quite how the supplier was able to achieve this change and who authorised such a material change which could have horrendous implications for the country and the CPC.
Deliveries to Muthurajawala takes 96 hours (called ‘Laytime’) and 120 hours if it involves both Muthurajawala and the Dolphin Pier. Yet, in this instance and inspite of the Minister’s assurances that ENOC Singapore had accepted the standard Terms and Conditions (including the 96 and/or 120 Hours Laytime) the CPC accepted ENOC’s request that the Laytime be reduced to just 48 hours. In effect what this means is that if the delivery takes longer (it is bound to, as the standard is 96 hours) the CPC would be obliged to pay two to three days demurrage at the rate of approximately US$ 50,000 – US$ 75,000 for each lot of cargo brought in. Quite exactly how this compares to being competitive is not immediately clear – except that Minister Premajayantha told The Sunday Leader that he does not know the ‘technicals’ but would call for an explanation from the CPC.
Most worrying of all is the fact that the Cabinet of Ministers approved a three-month contract. The CPC entered into a six-month contract. When we asked Minister Premajayantha about that, he said the Treasury felt it was more beneficial for a six-month contract. Other Ministry sources and the CPC officials said that necessary assent had been obtained from the Presidential Secretariat for a six-month contract – rendering flippant the Cabinet decision of a three-month supply.