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Sri Lanka halts privatisation of oil sector

It had earlier planned to privatise the CPC by giving two thirds of its petrol stations to private sector firms, reports PK Balachandran.
By PK Balachandran | None, Colombo
UPDATED ON JUL 28, 2006 08:22 PM IST

The Sri Lankan government has virtually closed the door to further privatisation of the island's oil sector.

On Thursday, the cabinet decided to ask the Treasury to give back to the state-owned Ceylon Petroleum Corporation (CPC) shares of 107 petrol stations meant to be sold to a third player in oil distribution.

"We are not for privatisation," Oil Minister AHM Fowzie told Hindustan Times on Friday.

Sri Lanka had earlier planned to privatise the CPC by giving two thirds of its petrol stations to two private sector companies.

The players in the market were to be the state-owned CPC; the Lanka Indian Oil Corporation (LIOC), and a third player, which was to be either Bharat Petroleum or Hindustan Petroleum or the Chinese company Sinopec.

Given the unions' strong opposition to privatisation and the lack of consistency in the government's policies, BP, HP and Sinopec opted out, leaving only two players in the market, namely, CPC and LIOC.

Currently, under mounting pressure from the unions, the government has ceased to look for a third player, and has given back the shares earmarked for the third player to the CPC.   

Union power

The power of the oil unions is such that the government cannot even appoint the Chairman of the Sri Lanka Petroleum Storage Terminal Ltd (CPSTL) without their consent.

The workers of the CPC and CPSTL went on a flash strike this week, which crippled fuel distribution in the island.

In the Western Province and Colombo, the problem was worse because the LIOC, which had suspended supplies in early June following a spat over government subsidy, was yet to resume distribution.

Even as the controversy over the appointment of a chairman continues, there is uncertainty over the subsidy to be paid to the LIOC threatening to make the LIOC a loss making company.

The government is against giving full subsidy to the LIOC and has asked the latter to fix its own price to cover up the loss.

But the LIOC Managing Director K Ramakishnan says that this is not a workable system in the oil sector.

"Even if the price is 50 cents less in the CPC outlets, people will go there rather than to an LIOC bunk. Oil is not a branded item," Ramakrishnan told Hindustan Times.     

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