Sri Lanka’s petroleum industry: policy, organization and challenges

R.H.S Samaratunga

doi:10.4038/sljda.v4i0.7102

Abstract

Global petroleum demand is around 90/mbd of which about 50 percent is consumed in OECD countries. Sri Lanka’s petroleum product consumption is minuscule compared with the global demand. The country has long been an import dependent consumer of petroleum products and spends about 24 percent of the import value on them at present (2011). The Ceylon Petroleum Corporation (CPC) has long been a monopoly provider of petroleum products to the local market. However, another player was added to create a duopoly in the petroleum product distribution market in 2003. Several sub sectors of petroleum industry have been liberalized since the 1990s with a view to build a competitive environment in the industry. Emerging trends in the industry indicate that the regulating the country’s petroleum industry is an important area of concern. As seen in many other countries, transport sector is the largest consumer of oil in Sri Lanka. CPC was able meet the total petroleum product demand of the country through its only refinery in the 1970s. Petroleum product demand in the country has been rapidly rising since the 1980s. Hence, the largest quantum of petroleum supplies to the local market has to come from imported refined product sources as the supply capacity of the CPC’s refinery remained fixed. Ensuring petroleum supply stabilities in a manner to support the ongoing rapid socio-economic transformation of the country has been placed high on the current petroleum policy agenda. Government pricing policy for the industry has been consistent since 2005 in which frequent price adjustments in tandem with international price movements has been abandoned. Various petroleum products including fuel oil for electricity generation have been an area of major concern as those supplies have mostly been subsidized creating difficulties in managing CPC during the last several years. DOI: http://dx.doi.org/10.4038/sljda.v4i0.7102 Sri Lanka Journal of Development Administration, Vol. 4, pp. 39-53, 2014

Highlights

Sri Lanka has been an import dependent consumer of petroleum products for a long time
This analysis begins with briefly outlining the petroleum market scenario at the global level
The analysis focuses primarily on the examination of the Sri Lanka’s petroleum industry’s policy, and organization and the industry’s challenges are examined briefly followed by concluding remarks at the end

Summary

Introduction

Sri Lanka has been an import dependent consumer of petroleum products for a long time. Refining crude oil in the country was not considered important either by the colonial government or by the companies operating in the Sri Lanka market. This could have been due to Sri Lanka market being small and development of the refinery infrastructure involving huge investment might not have been profitable for those companies engaged in the market. Moving away from this policy, the first refinery for processing imported crude oil was commissioned at Sapugaskanda in 19698 This policy initiative made the country’s supply of petroleum products more secured and the industry to be more profitable. With the overall policy changes initiated by various governments over the years, the structure of the industrial organization has changed drastically

Organization

Findings

Concluding Remarks