Crises in Fuel and Gas
Posted on June 21st, 2022

A denizen of Colombo 5

The fuel and gas crises continue unabated. People stay in unending queues not for hours but days without drinks or food. A few have died in the queues and the crowds are becoming to be restless and violent. There is no light at the end of the tunnels. This tragedy is not due to a natural disaster or a sudden occurrence but due to a lack of vision and political expediency of our rulers over decades. The immediate scarcity of dollars blew it up. It is useful to examine the calamity from the angle of availability of fuel and gas the management of the scarce resource and the series of poor decisions which aggravated the problem.

India began exploration of hydrocarbons in the Cauvery Basin, in 1958 and found both oil and gas. The closest oil well in the Indian sector is only 24 km West from the Sri Lanka maritime boundary in the Mannar basin, Petroleum exploration in Sri Lanka began approximately late 1960s. The explorations done by Russia during that time were not successful. The next effort in oil and gas exploration of 2D seismic surveys were conducted in Mannar basin only in the next century during 2001 and 2005 and the first international licensing round was held in 2007 for three exploration blocks (M1, M2 and M3) in 2007, and one exploration block was awarded in 2008 to Cairn Lanka Pvt Ltd, subsidiary of Cairn India.

For the first time, two natural gas discoveries were made in two wells out of the three wells drilled in Block M2 by Cairn in 2011.

 Sri Lanka’s Petroleum Resources Development Secretariat (PRDS) with the assistance of regional experts estimated that the Mannar basin alone could have the potential to generate over two billion barrels of oil and over nine trillion cubic feet of natural gas(9 TCF), which would be sufficient to fulfil a substantial portion of Sri Lanka’s energy needs for the next 60 years.  

https://www.news.lk/fetures/item/27867-oil-and-gas-in-sri-lanka-are-we-on-track

It took another 10 years to enact Petroleum Resources Act, No. 21 of 2021 to provide for the establishment of the petroleum development authority of Sri lanka; the formulation of a national policy on upstream petroleum industry and regulation and management structure capturing the maximum economic value of domestic petroleum resources.

The present estimate of the Mannar Bay oil and gas resources is claimed at US$ 267 billion. Cabinet approved the proposal of the then Minister of Energy to invite investors to exploit the resources on a fifty/ fifty basis. He was planning to present the proposal to a forum of oil explorers on the 15th of March 2022 but before that the Minister was sacked.

It is noted that the government policy and action on oil exploration was entirely erratic. The last act of preventing the presentation of the present proposals to the international oil interests at this moment when oil prices at their peak is criminal.

We should have offered one well in 2011 to an investor for 20 years on a Build Operate and Transfer basis. This was the formula for FDI that Gunnar Myrdal suggested to SWRD in 1957. When this well was in operation other investors could have been invited on our terms.

So, the present crisis is a result of all governments from 1960 onwards for lack of a vision and inability to exploit a proven resource.

Another failure in the determination of development priorities was on the Sapugaskanda Oil Refinery built in 1969 with a capacity of 35,000 bbl/d. This was expanded thereafter to a processing capacity of 50,000 bbl/d to meet the domestic requirement of Petroleum fuel. Singapore, which does not produce a drop of crude oil, developed a refinery capacity of 1.51 million bpd by 2018. Our vision was to build a refinery capacity to meet only the domestic demand whereas Singapore went into the export of refined products.

Sapugaskanda refinery also had a facility for the production of urea.It had a capacity for an annual production of over 294,000 tons of granulated urea valued at US $ 79 million. This facility was sold to an Indian buyer and it is mentioned that there is no information in the public domain as to how much this urea plant was sold by the Sri Lankan Government to the Indian company. (https://www.ft.lk/Agriculture/The-saga-of-the-fertiliser-industry-in-Sri-Lanka/31-700789)

If all the refined petroleum products could be produced in our own refinery we would have cheaper products and avoid waiting anxiously the arrival of a refined products ship.

            On the management of resources Sri Lanka had a golden opportunity of holding a reserve of crude oil which even the USA does, using the Trincomalee oil Farm which we got for a pittance from the British. While Sri Lanka did not realize the vital importance of the Oil Farm India was so cognizant that in the subterfuge of the Exchange of Letters in the Indo Sri Lanka Accord It was included at item three as -III) The work of restoring and operating the Trincomalee Oil Tank will be undertaken as a joint operation between India and Sri Lanka. Yahapalanaya gave the Oil Farm to India on a platter.

A government with a vision could have made use of these tanks to stock oil when the prices were down.

During the last few years fuel consumption has swelled rapidly due to the surge in the import of vehicles, mainly high-powered gas guzzling vehicles. It is known that more vehicles were allowed to be imported to collect a higher amount of customs duty. The surge of imports and the over concentration of economic activities in the city has led to a severe traffic congestion. It was estimated in 2005 that the average speed on Colombo roads falls below 15 kms per hour.  It must be much lower today. At such speeds, fuel consumption doubles, consequently increasing air pollution as well. In addition to the direct cost of fuel there is also the opportunity cost to the commuter of the time lost on the roads.

Colombo roads have been widened as much as possible and it is impracticable to widen the present roads any further. There are several actions that could be taken to ease the traffic congestion marginally.  These include introducing flexi hours in officers thus smoothing the traffic peak. In many countries heavy goods vehicles are kept away from the center during peak hours. Charging a fee on single passenger vehicles induces passengers to use vehicle pools. Another method is the use of park and use of public transport is being presently tried out. The improvement of public transport is perhaps the best way to wean away commuters from using private vehicles.

When all countries in the world were encouraging the use of electric vehicles, Sri Lanka in the 2015 interim budget’ imposed a prohibitive tax on hybrid vehicles of 92 per cent of the total value of the vehicle. One wondered whether it was a scam to induce the import of Indian makes. It is estimated that if all vehicles in Sri Lanka were to move to hybrid, we could save 25% (or more) on the total import value of fuel for motor vehicles.

In Sri Lanka motor cars have become a status symbol. In India until recently all political VVIPs used the India made unostentatious Hindustan. Some of the luxury vehicles cannot be accommodated on our narrow roads. A poor country like Sri Lanka cannot afford to have a plethora of makes and provide funds for their spares. A sensible proposition is to standardize in a few makes and move for the progressive manufacture of those vehicles in the country. In the current it should be on electric cars.

In 1964 when Anil Moonesinghe was the Minister in charge of CTB all new purchases of buses were standardized in three makes and the Fiat company agreed for the progressive manufacture of small buses and cars in Sri Lanka.

But all these measures are only short-term solutions. When the transport system is made more efficient more commuters will use the system producing a vicious circle.

It is time that long term sustainable solutions to the traffic and fuel problems be planned now. In radical terms what is required is to dismantle Colombo by removing the over concentration of Administrative activities from Colombo which should be developed only as a commercial city. Unfortunately, our first step in moving out the Administration out of Colombo was colored by the anxiety to perpetuate the name of a living national leader. The capital city was located in a new city named the Jayawardhane Pura, in a marsh, at a short distance from Colombo. This move has not reduced the population or traffic congestion.

In this context there are two main measures which need careful attention.

First is to locate the main government Departments in the Districts where the relevant activities are dominant. For example the Irrigation Dept and the Mahaweli Authority should be located in Anuradhapura. Paddy Marketing Board could be moved to Polonnaruwa. More Departments could be moved to District centers. What is the logic of the Department of Surveys or the Malaria Control Division being located in Colombo District? It should be noted that the Department of Agriculture, a major Department has been functioning effectively in Peradeniya from British times. Such a move would also meet the objectives of the decentralization of governance.

The other strategy is to establish satellite secretariats in the periphery of the Colombo City. There is already a working model in the Kacheri system (now District Secretariats) where several Departmental units operate under the nominal supervision of the Government Agent. The large Departments and other Public Enterprises in the City could locate sub units in such a common secretariat. With fiber optic communications and advanced technologies most of the work could be done online. If physical monitoring is a must CCTV systems could also be installed. Such offices could reduce the time wasted in travel by office workers at least by 50%,and drastically reduce traffic congestion. The cost of time wasted by road users is not normally considered, but it is enormous.

Other than the attraction of Colombo as the business, cultural, health and recreational center, the location of the best schools in Colombo generates the worst traffic congestion with one way traffic towards Colombo in the morning and a reverse movement in the afternoon. One good example was the sophisticated Panagoda Army cantonment which was underutilized due to Army Headquarters being located in the heart of Colombo. At least now it has shifted to Akuregoda still in the capital city. Improvement in the schools in the periphery will attract children to those schools and reduce the traffic congestion and also the grueling time in crowded vehicles spent by young children .

In the long run, Colombo should be dismantled by developing regional centers. This is where the development of Hambantota with the infrastructure and other facilities is well justified. Such regional development should be considered as investments for the future.

Any move to dismantle Colombo will be strongly resisted by vested interests who like to retain the advantages of living in Colombo. Investment in satellite secretariats and shifting major departments to the districts will be cheaper than investing in mass transport systems.

(Writer is a denizen of Colombo 5)

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