Fuel crisis rocked India-Lanka relations

Fuel crisis rocked India-Lanka relations

P K Balachandran,
Long queues at petrol stations

Even as inter-dependence is taken as given in the globalized world, it spawns problems for the interacting countries. Issues bedeviling energy ties between India and Sri Lanka and water sharing between India and Bangladesh are cases in point.

Energy ties between India and Sri Lanka, plagued by controversy right from the time they were mooted in 1987, came under severe stress between the middle of October and the first week of November this year. Had it not been contained by mature and deft diplomatic action by India and a spirit of accommodation at the top most echelons of the Sri Lankan government, the issue of island-wide petrol shortage would have led to a diplomatic showdown between New Delhi and Colombo.

Also Read: India re-orients its policy on the Sri Lankan ethnic question

In the first week November, there was a severe shortage of petrol and diesel throughout Sri Lanka for which blame was being thrown about recklessly. The Minister of Petroleum, Arjuna Ranatunga, put most of the blame the Lanka Indian Oil Corporation (LIOC), a wholly owned subsidy of the Indian oil major Indian Oil Corporation (IOC). He also blamed the “fuel mafia” which he said is wanting the petroleum sector to collapse so that it is privatized; and vested interests who sent out SMSs warning of a sudden strike of petroleum workers which led to a run on the petrol stations.

Sri Lankan nationalists followed the minister and indulged in India bashing. They called for the abrogation of all energy agreements with India. But others blamed Minister Ranatunga and his brother Dammika Ranatunga, Chairman of the Ceylon Petrolum Corporation (CPC) which controls 84% of the market. The CPC’s stocks had been allowed to run low and the shipment it had ordered was delayed by a week.

Initially, Minister Ranatunga seemed to get away with his contention that the shortage was due to the LIOC’s landing a consignment of impure petrol (with some particles floating in it), and the Ceylon Petroleum Corporation’s having had no option but to reject it. To this he added, the mysterious breakdown of the power supply system in the Sapugaskanda oil refinery and the breakdown of the India-supplied computer system which controls distribution of fuel.

Also Read: India-Sri Lanka joint military exercise Mitra Shakti-2017 from October 13-25

Ranatunga said that the LIOC had brought in a load of petrol on October 17, which when tested, was found to have floating particles. The consignment was rejected. But the LIOC said that the petrol could be used after filtration which the supplier, the French multi-national TOTAL, would do from ship to ship at their cost. But the CPC would not accept that too and insisted on a fresh consignment from another ship. Ranatunga pointed out that a fresh consignment was not brought and the vessel with the polluted petrol in it was kept in Tricomalee with the intention of forcing the CPC to accept the polluted oil.

Ranatunga also alleged that a tanker ordered by the CPC was to come on November 2 but it was mysteriously delayed by a week.

LIOC’s Defense

But the Minister’s bluff was called when the LIOC issued a statement describing his allegations as “mischievous and factually incorrect”. The LIC’s statement drew attention to the fact that it caters to only 16% of the Sri Lankan market, while the remaining 84% relies on CPC supplies and therefore it could not be blamed for an island-wide severe shortage.

“Large shortages across the country can only be caused by disruption in supplies of CPC. The average daily sales of LIOC is 600 MT of petrol. Against this, as on date, LIOC has a buffer stock of 3500 MT of petrol at the Common User Facility (CUF), which is managed by CPSTL.  It may be noted that LIOC has adequate stocks of diesel at both Trincomalee terminal & at CUF and normal daily diesel sales of 775 MT is continuously happening from all our sheds across the country. It is total misrepresentation of facts that diesel is not being sold by LIOC sheds.”

“LIOC had procured a shipment (parcel) of 35,000 MT of petrol from the French oil company M/s TOTAL on DAP basis, which arrived in Sri Lanka on 16 October 2017. As per routine procedure, the petrol was tested by CPC/CPSTL laboratory before being accepted by LIOC. It was found that while the parcel met the chemical properties specification, it contained some visible particles. CPC/CPSTL laboratory as well as LIOC refused to accept the parcel. LIOC maintains its own high quality standards, which it does not compromise at any cost.”

Also Read: India’s biggest importer of gas, Petronet to build Sri Lanka’s first LNG terminal

“LIOC immediately informed M/s TOTAL to replace the parcel. It may be noted that ownership of the product remains with M/s TOTAL till it satisfies the requirements of LIOC and CPC/CPSTL laboratory. Once a parcel is rejected, LIOC has no further role thereafter and it is the seller’s own sole discretion/responsibility to decide when to take out the vessel from Sri Lankan waters.”

“As replacement cargo would have taken at least 25-30 days, M/s TOTAL offered to remove the particles through filtration process, which is a common industry practice, in order to enable expedited delivery by 3-4 November 2017 to manage the present crisis. For reasons unknown to us, this proposal was not acceptable to CPC officials.”

“Hence, LIOC asked M/s TOTAL to replace the parcel completely. Allegations that LIOC pressurized CPC to accept the original parcel without correction are totally false.”

“It is reiterated that LIOC always adheres to the quality parameters in totality and procures goods from reputed oil companies only. LIOC’s quality track record bears this out.”

“Further, the allegation that LIOC tried to sell sub-standard diesel is totally malicious and frivolous. In fact the diesel proposed to be imported was of much better quality as per international standards. However, since the country is still having old specifications for diesel, CPC informed that they demand Sri Lankan specifications irrespective the quality of diesel and accordingly, LIOC decided not to procure.”

Also Read: ‘India should remove non-trade barriers on Sri Lankan products’

“Though LIOC had sufficient buffer stocks, in order to assist CPC (whose shipment has been delayed), we immediately contacted our global suppliers for an emergency delivery (in addition to the replacement delivery by M/s TOTAL). This is expected to reach Sri Lanka by 10 November 2017.”

“We understand that a CPC petrol parcel, which was scheduled to reach Sri Lanka on 2 November 2017, has been delayed. While we are not aware of the reasons for this delay, such a disruption has led to shortages of petrol across the country.”

Minister Isolated

Sri Lankans at large accepted LIOC’s logical and factual presentation and blamed Ranatunga and his brother Dhammika Ranatunga, the Chairman of CPC, for not keeping an adequate buffer stock of fuel in case of delays in shipments. Prime Minister Ranil Wickremesinghe also castigated the Minister and told parliament that LIOC could not be blamed.

Former Oil Ministers Anura Priyadarshana Yapa and Chandima Weerakkody lambasted incumbent Minister in a cabinet meeting. Yapa asked the Prime Minister and President Maithripala Sirisena to appeal to India to send supplies urgently.

Sirisena then spoke to Indian Prime Minister Narendra Modi who promptly said that he would dispatch 21,000 kilo liters in addition to asking the LIOC to release 3500 kilo liters from its own stock. More shipments would be sent if necessary, Modi said.

This, well as the arrival of the much awaited shipment with 40,000mt. from Dubai on November 9, solved the fuel problem. But the episode left a bad taste in India’s mouth and created a fresh split in the cabinet. Ranatunga is likely to be sacked.

However, Ranatunga is likely to revive the demand that Sri Lanka take back all the 99 giant storage tanks given to India by the earlier Wickremesinghe government between 2002 and 2004.

Earlier this year, the Sri Lankan government had told New Delhi that it wants 30 tanks for its exclusive use. In April, India agreed to joint development through a Joint Venture. The two countries signed an MOU according to which India will continue to use the 15 tanks in the Lower Tank Farm, while the 84 tanks on the Upper Tank Farm will be run by Joint Venture with Sri Lanka keeping 10 for its own use. But work on this project is tardy.