Ceylon Petroleum losses rise despite falling oil prices

May 04, 2016 (LBO) – State-owned Ceylon Petroleum Corporation (CPC) made a substantial loss of 18.4 billion rupee in 2015 compared with a marginal profit of 1.5 billion rupees in 2014, despite international oil prices falling sharply, according to provisional data released by the Central Bank.

A significant reduction of domestic petroleum prices at the beginning of 2015 “without a commensurate duty reduction” contributed to the loss, the annual report of the Central Bank said.

“The substantial reduction in domestic petroleum prices in early 2015 and the increased number of vehicles in the country raised the domestic demand for petroleum from the transportation sector,” the report said.

Petrol prices were slashed by between 19 percent to 22 percent last year. The price of auto diesel was shaved by 14.4 percent.

Along with an increase in imported vehicles, local sales of 92 Octane increased 18.7 percent to 911,000 MT, and 95 Octane petrol sales increased 45 percent to 100,000 MT.

The depreciation of the rupee also increased CPC’s trade payables and liabilities to the banking sector — total gross liabilities of CPC to the banking sector increased by 18.9 billion rupees to 264 billion rupees during the year.

“The losses include 6.2 billion rupees incurred due to exports of excess furnace oil and naptha, owing to the lower domestic demand for such byproducts of the CPC’s refinery,” the report said.

Improved debt collection, however, helped CPC reduce outstanding trade receivables from government entities to 16.7 billion rupees in 2015, from 30.8 billion rupees in 2014.

Analysts say a pricing formula would help CPC cut losses, although there is little transparency around crude oil purchases by CPC and whether the entity is efficiently managed.

The average price of international crude oil fell by 46 percent, from 99.68 dollars per barrel in 2014 to 53.75 dollars per barrel in 2015. Oil prices hit a low of 28.09 dollars per barrel in January 2016.

Brent Crude has picked up in recent weeks and was trading at 44.88 dollars on Wednesday.