Sri Lanka’s CPC looking at US$ 2.4bn expansion with six year programme to recover the money
The Sri Lankan government’s petroleum company, the Ceylon Petroleum Corporation (CPC) is reportedly seeking tax concessions and government assistance to finance several expansion projects that could cost as much as US$ 2.4 billion, but would increase the efficiency of the state institution.
CPC Chairman Dammika Ranatunga has told Daily FT in an interview that the CPC, which owes over Rs. 300 billion to banks due to subsidised sales prices, is seeking Treasury assistance to finance some of its key expansion projects including the Sapugaskanda Oil Refinery expansion that could cost US$ 2.3 billion.
The CPC has lobbied with the Finance Ministry for tax concessions or to assist in securing concessionary loans to finance the project.
“We can recover the money invested in about six years’ time. We pay the Government about 40% in taxes so if we get a concession on the taxes we pay on the refinery at least we will be able to pay the loans. If we structure the loans properly, we will be able to pay those loans and also will be able to save a lot of money instead of paying it in six years. If we get a concessionary loan we will be saving enough money to utilise on other products,” Ranatunga has told Daily FT.
He has explained that the expansion will improve the capacity of the refinery, which can only meet 30% of the country’s demand at present, to 100% by 2025 and is expected to save US$ 400 million annually for the CPC once completed.
The CPC is considering two options to fuel the much discussed Sapugaskanda expansion project. One is to commission a suitable bidder to build and supply the crude oil needed, Ranatunga has said.
The second is to finance the project through a concessionary loan to be repaid within a period of 10-12 years.
“If we can do a long-term crude supply then it does not put a burden on the Government. If we do the long-term crude supply then we have to decide on a price based on international prices lower than whatever we buy at the time. If they can get it directly from a well, then that cost is also much less, they have an opportunity to work that angle as well.”
The CPC has already secured three parties interested in the project, Ranatunga has said.
The company is also considering a number of other development projects to improve operations and make long-term savings.
Moves are also underway to install more pipelines between the Colombo Port and Kolonnawa to reduce transport time leading to savings of US$ 5 million per year.
Further, a new pipeline will link the Kolonnawa and Muthurajawela terminals.
The CPC is also planing to install a new 90,000-metric ton tank for storing aviation fuel which will then be directly pumped to the BIA terminal via a proposed 4-km-long pipeline connecting Muthurajawela terminal and the airport.
According to estimates, the project will save US$ 2.54 per metric ton of aviation fuel, enabling BIA to provide fuel at better rates leading to profitability of Rs. 3 billion per year for the CPC.
Meanwhile, the Ceylon Petroleum Storage Terminals Ltd. (CPSTL) has also begun the process of evaluating and restructuring 11 Provincial Fuel Depots where revisions will be done in locations depending on emerging economic zones.
While the CPSTL is able to self-finance their projects, projects proposed by CPC to improve capacity need to be financed through loans or Government funding, Ranatunga has said.
OSL take:
The move by Sri Lanka’s CPC to launch a massive expansion project undoubtedly opens up investment opportunities. Apart from the expansion of the oil refinery, the building of oil pumps and the restructuring of provincial fuel depots is a list of opportunities for foreign as well as local businesses to look at.
| Article Code : | VBS/AT/30102017/Z_2 |