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CPC: Rich with lessons and losses; poor with remedies

Aug 30, 2011 4:21:36 PM - www.ft.lk

THE report of the three member committee appointed to investigate the import and distribution of substandard petrol was out on Monday. Unlike some of the other reports, this one was made public much to the relief of civil society.

The Committee was headed by Power and Energy Ministry Secretary M.M.C. Ferdinando and comprised CPC Chemical Engineer E.M. Piyasena and Acting Marketing Manager S.M.C.G. Samarakoone. What was their mandate?
It all began after an estimated 20,000 metric tonnes of petrol and 15,000 tonnes of Diesel were imported as an emergency measure to manage the shortage of stocks. After the stock was taken delivery of and distribution began in June, it was found that the fuel imported was contaminated. However this realisation came after an estimated 513 metric tonnes had been released, users of which began reporting problems in their vehicles. Fuel stations numbering around 400 also reported breakdowns as a result of using the stock.  The whole episode caused a furor among motorists, unsettled politicians and the petroleum administration. Soon after, the Petroleum Ministry Secretary Titus Jayawardane resigned from his post prompting speculation that he was asked to quit. Payment to the supplier of this consignment, Emirates National Oil Company in Dubai, estimated to be $ 11.5 million was suspended followed by the appointment of the three-member committee to probe the entire fiasco.
The supplier had claimed that at the time of shipment the stock was in perfect quality.   However the Committee had found several lapses in the chain of events that led to the import of the substandard stock.  The recommended procedures and guidelines had not been followed apart from other missteps.
Taking a tough stance, the Committee had recommended financial compensation to all victims of the substandard petrol. Such funds have to be sourced via the supplier, failing which, from the CPC itself.
If it was an act of taking responsibility then apart from the Ministry Secretary none in the CPC stepped down. Petroleum Minister Susil Premajayanth as well as CPC Chairman Harry Jayawardena were out of the country when the shipment had arrived but the Committee had found lapses in the “means to an end”, in this case the procedure followed to deal with the rock bottom level in fuel stocks. The actual person who ordered or influenced the import and cleared the stock remains at large.
Deviation from laid out procedures on procurement is not unique to the CPC alone but common in other state entities as well. This is also not the first time where lapses had been exposed with regard to the CPC. Even during the Supreme Court hearing of the Hedging case, this aspect came under spotlight as part of buttressing certain arguments by concerned parties.  The CPC must have been a sitting target for similar allegations in the past as well. If one needs an official account then browsing through the Auditor General’s Reports on CPC Accounts of the past would be the best reminder.
Whilst the Committee’s observations and recommendations are fine in the latest fiasco, the entire substandard fuel saga reiterates the need for the Government to clean its hands in terms of ensuring that CPC sticks to laid out rules on procurement. In doing so the Government must walk the talk by disciplining itself as well as other powerful political personalities from exerting undue influence on the management.
Apart from spikes in oil prices, the subsidies involved and inconsistency in energy policies, the past sins of procurement malpractices are certainly a key contributor to CPC bleeding the nation with mounting losses.  Pre-tax losses in 2008 and 2009 amounted to over Rs. 25 billion. Estimate for 2010 was Rs. 27 billion loss, an amount also tipped as the loss during the first half of this year. The impact of the hedging deal remains like an axe about to fall on the CPC even though it is currently at ‘one all’ stage with the Standard Chartered Bank case lost and Citibank litigation won.
Key lesson from myriad examples, exposes and fiascos could be used as best practices in all aspects of governance, transparency and financial discipline. The Government cannot do it alone but needs the support of all employees of the CPC as well. Realising each other’s responsibilities and limits as well as making the CPC a dynamic public utility will certainly provide the fuel needed for the regeneration of overall good governance in the country.

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