Sri Lanka refinery upgrade to cost US$1.5bn

Feb 24, 2013 (LBO) - An upgrade to Sri Lanka's 50,000 barrels refinery a day involving doubling of is capacity and boosting light distillate yields could cost up to 1.5 billion US dollars, officials said.

Petroleum minister Anura Yapa told reporters Saturday that feasibility and front-end-engineering-design (FEED) has already been completed for the project.

Sri Lanka's only refinery owned by state-run Ceylon Petroleum Corporation was built in the 1960s and yields a low proportion of light distillates and higher proportions of furnace oil compared to technology available today.

When crack margins (the gap between crude and refined products) narrow it is sometimes saves money for the country to shut the refinery and import refined products direct.

But a tax on refined products has created conditions for a seeming economic viability for the refinery.

Sri Lanka has been attempting upgrade the refinery by applying new technology such as hydro cracking, but the project is expensive.

Ceylon Petroleum Corporation chief executive Susantha Silva said Sri Lanka was now selling petrol and diesel with a lower level of sulfur than when the refinery started.

The refinery had been fine-tuned to handle Iranian light crude which Sri Lanka now finds it difficult to procure due to US sanctions.
Instead the country has been using an Oman light blend. Silva says the yield is less from the crude.

To recover the cost of the refinery however Sri Lanka has to sell petroleum at a cost plus, but some products including kerosene is still not sold at cost recovery prices.
http://lbo.lk/fullstory.php?nid=1932445249

They already have billions of losses, and need further US$ 1.5 billion to upgrade. I think this is not going to be a viable business model for Government to run any further, This CPC will erode the economy in large scale. I think prudent way is to directly import refined oil for domestic use and let the private sector to invest in refinery to export market. like what is done in Singapore.

WildBear,
I doubt no one can bypass our patriots and also highly efficient trade union members. They will say we must protect the government sector industries.

*Total CPC debt to local banks, a whopping Rs. 410 billion
*Sapugaskanda upgrade to cost US$ 1.5 billion
* State institutions owe CPC Rs. 38 billion

Petroleum Minister Anura Priyadharshana Yapa stressing a point a yesterday’s news conference. Additional Secretary, Ministry of Petroleum Sandya Wijebandara, Secretary Dr. R. H. S. Samaratunga, CPC Managing Director, Susantha Silva and Petroleum Ministry Additional Secretary Nimal Mitraratne were also present.

by Ravi Ladduwahetty

The fuel price increase effected midnight Friday was inevitable due to the soaring Ceylon Petroleum Corporation debt of Rs. 89 billion which was also affected by rising global crude oil prices which shot up from US$ 95 per barrel to US$ 118 between June 2012 and February 2013, Petroleum Minister Anura Priyadharshana Yapa said yesterday.

``With the price increase, we are confident that we could reduce the CPC debt by Rs. 50 billion by end 2013,’’ he told a hurriedly arranged news conference at the Government Information Department.

The minister was responding to a question on the reason for the increase in fuel prices and whether the government was yet subsidizing the fuel.

He said that with the price increase, petrol was not being subsidized, but diesel and kerosene were. The government was still subsidizing diesel by Rs. 10 per litre costing the state Rs. 50 million a day on the sale of 5 million litres a day as the CPC held 95% of the diesel market.

Lanka Indian Oil Corporation priced diesel above CPC to push down its sales of this fuel and resulting losses but offered its dealers some compensation for loss of their diesel business. Following the latest price increase the diesel price of CPC and LIOC would be on par.

Yapa said that the government was subsidizing kerosene at Rs. 23.96 per litre which meant that the daily cost of the kerosene subsidy was Rs. 48 million on 2 million litres of kerosene. We will be able to break even overall on fuel in 2014.

Yapa said he had also told President Mahinda Rajapaksa the day he was sworn-in that the Ceylon Petroleum Corporation could not continue to subsidize the consumer indefinitely even on sympathetic grounds. He also said that the government was not required to consult the Public Utilities Commission on the increase of the fuel prices.

Asked why the government kept the fuel price increase under wraps till yesterday morning, he said that they wanted to keep it secret fearing long queues outside filling stations which the government wanted to avoid. No such queues were seen yesterday as the price increase was already effective when the word got out.

When pointed out that there were taxes on petrol, the Minister said that there was an excise duty not only on petrol but also on diesel which was Rs. 2.50 per litre.

He also said that the CPC’s debt to the local banks amounted to a whopping Rs. 410 billion.

Asked what was owing to CPC from state institutions, he said that the total outstanding was Rs. 38 billion. The CEB owed Rs. 24 billion and the Railway Rs. 5 billion. Several power generating companies also owed CPC billions, he explained.

Minister Yapa also said that the pre-feasibility studies for refurbishing and expanding the Sapugaskanda refinery was complete. This work was expected to cost over US $ 1.5 billion but the start-up date was not yet fixed. Once the expansion was completed, current production of 50,000 barrels a day will be the doubled to 100,000 barrels per day.

One of the major drawbacks at present was in refining Omani crude which limited production to 35% of capacity. "The refinery, built in 1969, is 44 years old and processing Omani crude yields lower output than Iranian crude which cannot be imported due to the US sanction,’’ he explained.

He also said that repairs to the leaking pipes at Kolonnawa was also going to cost the CPC a substantial sum through he mentioned no figure.

Asked about the a possible third player entering the market, Yapa stressed "there will not be a third player. CPC and the Lanka IOC will run the petroleum business in the country.’’

CPC owns 257 filling stations of a total of 1,057 while the rest is owned by either the Lanka Indian Oil Corporation PLC or dealers operating them.
http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=73347