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Sri Lanka oil refinery faces risk of break down due to its intermittent closure

Sri Lanka has once again compelled to delay refining of crude oil to produce Petrol. Diesel Kerosene and Jet fuel locally due to the shutdown of Sapugaskanda oil refinery since October 07 as the unloading of crude oil shipment is still pending because there was no way of making a payment for it, Minister of Power and Energy Kanchana Wijesekara said.

“Order has been placed to get down three shipments of crude oil in the recent past and the government managed to make payments only for two of them. However, the funds are inadequate to pay for the third one. Therefore we have no option left, but to close the refinery temporarily,” the Minister said.

He noted that they have deposited the necessary rupees for that but have not received the forex for the payment. So we took a policy decision to close the refinery.” The minister said enough fuel stock is available with the state-run Ceylon Petroleum Corporation (CPC) and no fuel shortages will occur going forward. “

The Sapugaskanda refinery was closed since 2021 and resumed operations in March this year and was closed again in July until it was reopened in August. It was also shut down for a week in May this year due to a technical issue.

The shutting down and restarting the refinery will create mechanical faults in its operation which will require the replacement of spares at unbearable costs during the dollar crisis period, a senior engineer of the refinery said.

An oil tanker carrying 99,000 MT of Eastern Siberia Pacific Ocean (ESPO) crude oil remains off the west coast of Sri Lanka for more than a month awaiting payment and racking up millions of dollars in demurrage charges, officials said.

Several CPC trade unionists and various interested parties are making allegations against the crude oil order placed by the CPC following the proper procedure and once an order had been placed and the vessel had arrived, the Government could not refuse it, Minister Wijesekera said.

Meanwhile, it is reported that the imported fuel cargos are also scheduled to reach the island in the next few days.

The reason for the present lack of fuel at a few filling stations is due to them not completing their orders properly, the CPC claimed.

Responding to a question, top CPC official pointed out that State enterprises such as the Ceylon Electricity Board (CEB) and the loss-making National Carrier SriLankan Airlines owed the fuel supplier millions of dollars in arrears.

He noted that had the monies owed been paid, the CPC would have been able to provide the banks with the necessary rupee equivalent to the dollar price of shipments, thereby securing Letters of Credit (LCs) to import crude oil, which would allow them to refine fuel locally.

The tanker waiting offshore is carrying approximately Rs. 28 billion ($ 80 million) worth of crude oil.

Sri Lankan Airlines has $ 300 million in arrears to the CPC. The power sector, the CEB, and Independent Power Producers (IPPs) owe the CPC approximately Rs. 100 billion.

If these state institutions fulfill their financial obligations then the CPC could settle payment of the lineup crude oil shipments to keep the refinery going for months.

Once a refinery is operational, it should be kept running without disruption to get the best value for money in fuel to meet the part of country’s demand, he added.

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