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Presidential hopeful and former PUCSL Chairman Janaka Ratnayake
In a startling revelation, Presidential hopeful and former Public Utilities Commission of Sri Lanka (PUCSL) Chairman Janaka Ratnayake yesterday brought to light an alleged financial fraud involving the Ceylon Petroleum Corporation (CEYPETCO).
He claimed that this is the largest fraud and corruption recorded by the Auditor General.
Briefing the media, Ratnayake said that during a Committee on Public Enterprises (COPE) meeting, he disclosed a fraud amounting to a staggering Rs. 36 billion linked to the importation of fuel oils by CEYPETCO.
He alleged that this mismanagement and corruption have significantly inflated fuel prices in the country, suggesting that the public could benefit from a reduction of Rs. 200 per litre if proper practices were followed.
Ratnayake said that following his allegations, the COPE instructed the Auditor General to conduct a comprehensive investigation into the claims.
“The findings of this investigation have unveiled significant mismanagement and financial irregularities within CEYPETCO, involving senior Government officials and politicians,” he claimed.
Those implicated include bigwigs namely; Power and Energy Minister Kanchana Wijesekera, former State Minister of Power and Energy D.V. Chanaka, State Minister of Power and Energy Indika Anuruddha, CEYPETCO Chairman Mohomad Uvais and Power and Energy Ministry Secretary Mapa Pathirana.
According to Ratnayake, key findings from the Auditor General’s report include; fuel oil procurement missteps, emergency procurement and resulting demurrage costs, bid management and tender irregularities, diesel procurement mismanagement, misapplication of pricing models, skyrocketing demurrage cost and inequitable fuel distribution.
Key Findings from the Auditor General’s report:
Fuel oil procurement missteps:
- Incorrect pricing and contract cancellations: The procurement of fuel oil by CEYPETCO was fraught with errors, leading to substantial financial losses. Despite established protocols, the corporation failed to secure long-term contracts for fuel oil, even though the Cabinet had mandated such agreements for 2021 and 2022. The expected quantities of 400,000 tons in 2021 and 548,000 tons in 2022 were never covered by contracts, forcing the corporation to procure fuel oil under less favourable conditions, contributing significantly to the Rs. 36.5 billion loss.
- Questionable urgency and extended delivery: The Auditor General questioned the urgency claimed by CEYPETCO in procuring fuel oil. Commercial managers extended the vessel arrival period at the loading port by 21 days, despite a declining market price for petroleum. This delay incurred an additional cost of Rs. 355 million, raising concerns about the decision-making process.
2. Emergency procurement and resulting demurrage costs:
- Failure to consider financial viability: In an emergency procurement decision made by the Stock Review Committee, CEYPETCO failed to assess its financial capability. The inability to unload ships as scheduled resulted in additional demurrage costs amounting to Rs. 336 million. This decision highlighted the lack of strategic planning and financial oversight within the corporation.
3. Bid management and tender irregularities:
- Rejection and recall of bids: A bid initially rejected by CEYPETCO for non-compliance with specifications was later recalled and split into two separate bids. The tender was ultimately awarded to the same supplier at a higher price premium, despite the original bid failing to meet necessary specifications. This irregularity in the procurement process underscores significant lapses in adherence to proper bidding procedures.
4. Diesel procurement mismanagement:
- Cancelled term contract and price premium purchases: CEYPETCO cancelled a term contract for 1,960,000 barrels of Diesel, which had been secured at a premium of $ 7.48 per barrel with a prepayment method set at $ 6.98 per barrel. Instead of adhering to this contract, the corporation procured 497,996 barrels from the same supplier at an inflated price premium of $ 24 per barrel, leading to an additional loss of Rs. 3.5 billion.
- Additional losses from alternative suppliers: During the term contract’s active period, CEYPETCO also purchased 922,281 barrels of Auto Diesel from two other suppliers at premiums of $ 17, $ 19 and $ 13.5 per barrel, further exacerbating losses by Rs. 3.4 billion.
5. Misapplication of pricing models:
- PLATTS pricing errors: The Auditor General’s report highlighted significant losses due to the misapplication of PLATTS pricing models. CEYPETCO incurred a loss of Rs. 3.8 billion by applying the price of Lanka Super Diesel instead of the more appropriate Lanka Auto Diesel for 1,820,012 barrels procured from four suppliers. Additionally, under the Indian Credit Line, the corporation suffered a loss of Rs. 1.7 billion due to the application of incorrect PLATTS prices.
- Crude oil pricing mishaps: A high price index was inappropriately used for the procurement of 2,023,509 barrels of crude oil, rather than the more suitable Singapore PLATTS index. This error resulted in a massive loss of Rs. 17.9 billion to the corporation.
6. Skyrocketing demurrage costs:
- Escalating demurrage expenses: The report revealed a significant increase in demurrage costs, with claims rising to Rs. 5.5 billion, a nine fold increase compared to the previous year’s cost of Rs. 572 million. The increase in per-barrel demurrage charges for both petroleum and crude oil shipments was a major contributing factor, reflecting inefficiencies in CEYPETCO’s logistics and supply chain management.
7. Inequitable fuel distribution:
- Unjust distribution practices: The Auditor General’s report also uncovered severe inequalities in the distribution of fuel stocks. During the crisis, only a small fraction of dealers received disproportionately large quantities of fuel:
- Only 8 out of 1,143 dealers were allocated more than 210,000 litres per month.
- Just 17 dealers received over 200,000 litres of Auto Diesel.
- Only 15 dealers were supplied with more than 350,000 litres of white oil.
- Public unrest: This unequal distribution during the fuel crisis led to long queues at fuel stations and fuelled widespread public discontent, contributing to the social unrest witnessed across the country. We make a public outcry to bring the named culprits to justice in order to recover the losses and to punish them and therefore we intend to lodge a formal complaint with the Bribery and Corruption Commission.
Ratnayake asserted that the Auditor General’s finding underscore the urgent need for reforms within CEYPETCO to prevent further financial losses and restore public confidence.
“The report calls for greater transparency, adherence to proper procurement procedures and improved oversight mechanisms to ensure that the CPC’s operations are conducted efficiently and in the best interest of the public,” he stressed.
As the country reels from the consequences of these revelations, Ratnayake said there is mounting pressure on CEYPETCO and relevant authorities to address these issues swiftly, ensuring that such failures are not repeated in the future.
Ratnayake said that the Rs. 36.5 billion loss is not merely a financial disaster, but a betrayal of public trust. “Immediate action is required to hold those responsible accountable and to mitigate further erosion of public funds. The public demands transparency, accountability and justice for the financial crimes that have contributed to the ongoing fuel crisis and social unrest,” Ratnayake emphasised.
