The Energy Ministry is seeking legal advice on the long-term agreements that govern Sri Lanka’s private fuel retailers, after two of them cut the volumes they distribute, Ceylon Petroleum Corporation Chairman D. J. Rajakaruna said.

The agreements run for 20 years and contain provisions on a ceiling price and the pricing formula that applies to the operators, Rajakaruna said, as reported by the Daily Mirror.

Two features of those contracts are now under review. They allow private operators to revise certain fuel prices themselves in order to avoid losses — and they may oblige the Government or the Ministry to compensate the operators if the prices they are instructed to charge leave them out of pocket.

Why the queues appeared

Rajakaruna said there is no fuel shortage or supply problem in the country, and that the CPC holds enough stock to keep distribution uninterrupted well into the middle of next year.

The queues reported at some filling stations were instead caused by distribution constraints at private companies, he said. Sinopec and RM Parks had reduced their distribution volumes because they were losing money under the current pricing structure, which produced temporary disruption in areas where private stations are the main — sometimes the only — source of fuel.

The Ministry, the CPC and the operators have since met. The companies were instructed to prioritise supply to the areas where shortages had been reported, Rajakaruna said, despite the lower profit margins involved. The CPC also plans to open 75 additional filling stations to widen its own distribution reach.

The self-revision clause is not hypothetical. Rajakaruna said it is what allowed private operators to adjust what they charge for Octane 95 petrol and Super Diesel — the mechanism behind the separate Octane 95 price revisions by Lanka IOC and Sinopec earlier this month.

The gap the state is absorbing

Rajakaruna put a number on the pressure. World crude and refined product prices have risen sharply since February — by an estimated 80 to 90 per cent in some cases — while local pump prices have gone up by only about 40 to 43 per cent, because the Government absorbed a large share of the difference to shield consumers.

That is the same gap, measured from the other side, that Verité Research described a day earlier: even after the November increases, auto diesel was still selling Rs. 62 a litre below its cost-recovery price and Petrol 92 Rs. 57 below. Rajakaruna’s account explains who has been carrying that shortfall, and his remarks indicate the private retailers have declined to carry their share of it.

He added that international markets had shown some signs of stabilising amid developments in conflict-affected regions, and said any benefit from a fall in world prices would be passed to consumers at the earliest opportunity.

The CPC puts a number on the gap: 52 locations

A separate corporate statement from the CPC, reported by the Daily FT, quantifies the problem the chairman described and corroborates his account from the corporation’s own side.

The CPC said reserves were adequate and that it was releasing stock continuously through the Ceypetco network with distribution uninterrupted. The problem, it said, was not supply but the withdrawal of volumes by certain private companies, which it again attributed to their operational losses. Long queues had formed specifically where no Ceypetco station operates nearby.

The corporation said it has identified 52 such locations — places with no state filling station within reach, which are therefore wholly dependent on private retailers and exposed when those retailers cut deliveries. That is the first published figure for the size of the exposure.

At a meeting chaired by the Secretary with all fuel companies, the firms confirmed their reduced volumes were down to losses and undertook to prioritise those 52 locations when distributing available stocks. The CPC added that it had raised its own volumes to compensate, and cautioned that minor queues may still appear where private distribution has fallen — a more qualified assurance than a flat denial of disruption.

The two filings agree on every substantive point: no shortage, adequate reserves, private operators cutting volumes over losses, a meeting convened, and an undertaking to prioritise the affected areas. The Daily Mirror supplies the contractual mechanism and the chairman’s account of the pricing gap; the Daily FT supplies the scale and the forum.

Context

Private operators cutting supply is not new. In early October, the CPC was forced to raise its own distribution volumes after Lanka IOC, Sinopec and RM Parks each reduced deliveries, a round of cuts that also produced queues.

Not reported

The filing does not say which law firm or officer is providing the legal advice, when it is expected, or what the Government would do if the agreements are found to oblige it to compensate the operators. It does not quantify the compensation potentially at stake, name the other parties to the 20-year agreements beyond Sinopec and RM Parks, or say when those agreements were signed. No comment from Sinopec or RM Parks is reported.

Neither filing lists which 52 locations have been identified, how they were selected, or how many customers they serve. Neither says when the Secretary-chaired meeting took place or who attended beyond “all fuel companies”, and neither reports whether the undertaking to prioritise those areas is binding or voluntary.

Sources: Daily Mirror, Daily FT.