The Petroleum Bill – its quiet passage and disquieting politics

by Rajan Philips

The Petroleum Products (Special Provisions) (Amendment) Bill had a quiet passage in parliament with a majority of 60 votes, 77 for and 17 against. What is disquieting is that only 94 of the 224 MPs (excluding the Speaker) were in parliament for the vote on a Bill on petroleum products, the mismanagement of which turned the country upside down in a matter of months this year. The Bill itself is not some masterpiece of legislation to foster proper management of the petroleum sector, but a simple seeming amendment to the Petroleum Products (Special Provisions) Act No. 33 of 2002. It underscores the point that in the absence of real infrastructure and supporting policy regime, there is no legislative, regulatory or constitutional way out of the crisis in the petroleum sector or any other economic sector.

The legal purpose in both the principal enactment in 2002 and the new amendment is to enable the granting of licenses to entities outside the Petroleum Corporation “to import, export, sell, supply or distribute petroleum.” While the 2002 law vested the licensing power in the “Energy Supply Committee” established under the Energy Supplies Act (No. 2, 2002), the new Amendment transfers that responsibility to a (new) committee appointed by the Cabinet of Ministers. The Amendment also redefines the subject Minister by the words “the Minister” instead of “the Minister in charge of the subject of Power and Energy,” as it was in the original Act.

The Bill was challenged before the Supreme Court over the constitutionality of some of its provisions and the whole Bill itself. The Court held that the Bill itself in one respect and some of the provisions were indeed inconsistent with the constitution but suggested changes to the Bill to remove the inconsistency and the necessity for a two-thirds majority in parliament and even a referendum. Parliament has now passed the bill into law presumably including the changes suggested by the Supreme Court.

Media reports have been calling the amendment as a law to “liberalize the petroleum sector,” obviously taking the cue from the Minister of Power and Energy, Kanchana Wijesekera, who said in parliament that the new Amendment “will allow global suppliers to enter as retail operators, eliminate the monopoly of the Ceylon Petroleum Corporation (CPC) on Jet Fuel and liberalize energy sector.” There is nothing in the eight clauses and four pages of the new Amendment that is not already in the main Act that is going to cause global suppliers to drop everything and rush with petroleum products to cashless Sri Lanka. If at all the new Amendment might be used to create the path of least obstacles to local petroleum wheeler dealers by replacing one obscure committee with another. This aspect of the Bill came up in the hearing before the Supreme Court.

Petroleum Saga

In an earlier article (July 24) I alluded to the saga of the petroleum industry – from pre-nationalization to nationalization in 1961, selective privatization thereafter, and the shift from CPC monopoly to CPC-LIOC duopoly – being a crucial case-study backdrop to the current fuel crisis. Any such case-study should be an exercise in political economy and not constitutional interpretations. Tragically, however, for all the political tumults about the supply and delivery crisis of petroleum products there has not been any corresponding ‘agitation’ in parliament either at the level of soliciting and securing up-to-date information on the supply and status of petroleum products, or at the level having some serious discussion about the petroleum crisis, its causes and potential solutions.

While no one in parliament is showing any serious interest in these matters, it is left to the Supreme Court to step in to fill the void. But filling the void is not solving the crisis and it is not in the business of the solve anything. Nonetheless, the Court’s ruling on the amending bill provides a good summary account of the “existing legal framework” for the regulation (I would add ‘and deregulation’) of the petroleum sector, beginning with the Ceylon Petroleum Corporation Act, No. 28 of 1961.

The current Minister who is now claiming that his new law will eliminate the monopoly of the Ceylon Petroleum Corporation, should know from the Supreme Court ruling (if he is not directly familiar with the CPC Act) that the 1961 law that nationalized the petroleum industry has always included provisions permitting the supply or distribution of petrol, kerosene, diesel oil or furnace oil by non-CPC entities with the approval of the Minister or CPC Board of Directors.

These provisions were not utilized by governments not because, as was suggested during the Court hearing, the CPC Act did not ‘contemplate’ regulatory measures for their application but because no government until after 1977 contemplated using them for the import, supply or distribution by non-CPC entities. This included both the governments of the Left and the Right. In fact, it was the UNP government of Dudley Senanayake that entrenched the monopoly of the CPC by building a new refinery in Sapugaskanda with the capacity to meet virtually the entire domestic demand for petroleum products by importing and refining crude oil from Iran.

Legal Labyrinth

Contemplation, if any, to use non-CPC sources for the supply and distribution of petroleum products began after 1977 with the changes in economic direction and philosophy, under a different UNP government led by PM turned President, JR Jayewardene. His government enacted the Petroleum Products (Regulation and Control of Supplies) Act No. 34 of 1979 to provide for the regulation and control of the distribution and use of petroleum products. Nothing much came out of it, and the JRJ government, as I wrote earlier, baulked from making a serious and considered decision about the petroleum sector (or the electricity sector) – whether to continue the CPC monopoly, ‘liberalize’ the whole sector, or selectively ‘unbundle’ it to create a healthy blend of both public and private sector involvement.

The next set of laws came after more than 20 years, in 2002, when Ranil Wickremesinghe was Prime Minister, co-habiting with President Chandrika Kumaratunga. There were three pieces of Legislation – the Energy Supply Act, the Petroleum Products Act and the Public Utilities Commission of Sri Lanka Act, all enacted in 2002. The Energy Supply Act was enacted to purportedly deal with the emerging energy crisis in the country, and the Act enabled the creation of a new Committee, the Energy Supply Committee, but it also provided for the of regulation of “activities of persons engaged in the importation, exportation, storage, distribution and supply of petroleum and petroleum products.”

However, the Energy Supply Act was in operation only for a period of two years from March 2002 to March 2004, and would seem to have died with the sacking (through dissolution of parliament) of the peace-process government of Ranil Wickremesinghe by President Kumaratunga. At the same time, the Petroleum Products Act that was also enacted in 2002 by the Wickremesinghe government has survived his alternations in and out of power and, according to the Supreme Court, has provided “a more empowered regulatory regime over the petroleum industry.”

The Court ruling suggests that the Petroleum Products Act (PPA) “sought to regulate the downstream petroleum sector by removing the monopoly of the CPC and providing for the issue of licences subject to prescribed conditions.” With respect and in policy parlance, the PPA legislation actually sought to achieve the opposite: to deregulate the petroleum sector! Pertinent to the new amendment to the PPA legislation, the latter provided for the licences for the import, export, sale, supply or distribution of petroleum products to be issued by the Minister on the recommendations of the Energy Supply Committee. The latter committee would somehow seem to have survived the demise of its enabling legislation. As I have indicated at the outset, the new Amendment is replacing the Energy Supply Committee by a new Committee.

A word on the Public Utilities Commission of Sri Lanka (PUCSL) Act to round off this legal labyrinth, and the underlying overlapping of vested interests. The intended purpose of the Commission (and the Act) is to provide “a framework for the regulation of public utilities industries, which originally included (in the Act’s schedules) only the Electricity Industry and the Water Service industry. The Petroleum Industry was added to the PUCSL list four years later, in 2006, just after Mahinda Rajapaksa became the new President.

As the Court duly noted in its ruling, it was unclear “during the hearing whether there was agreement amongst parties on whether the PUCSL did exercise any regulatory power in terms of the PUCSL Act over the petroleum industry.” And the Court concluded that “the PUCSL does not have any power of regulation over the petroleum industry merely upon it being included in the Schedule to the PUCSL Act.”

What next?

The question now is what difference is the new amendment going to make to the operation of the petroleum sector? The Minister might think that he now has a freer hand to break the monopoly of the Ceylon Petroleum Corporation and get non-CPC entities to import and supply petroleum products for local distribution. If the Minister, or the government, wants to really end the monopoly of the CPC, even though there is no monopoly now anyway, it must bite the bullet and privatize the CPC. That way whoever is willing to take over the CPC can use its infrastructure the same way the CPC used the infrastructure of the multinational oil companies after nationalization. In trying to create a parallel system besides the CPC, the government is only leading the country into the worst of both (public and private) worlds. The same way the JRJ government destroyed the bus industry and the school system. Very soon there might be an international university on climate change headed by a new Jennings from Norway!

As for falling into the worst of both worlds, the Supreme Court ruling has laid down the markers to indicate where things easily go wrong. The Court held that in three areas the new Bill was inconsistent with the Constitution and suggested changes. First, the Court directed the new Committee to be restructured to include two additional Ministry Secretaries similar to the Energy Supply Committee. Second, it struck Clause 7, a deeming provision that made any previous act by the Energy Supply Committee legal and unchallengeable in courts. Third, the Court held the whole Bill inconsistent with the Constitution insofar as new Committee was kept outside the purview of Bribery Act. The Court directed the Bill to be changed to include the Committee as a Scheduled Institution under the meaning of the Bribery Act.

Why was it excluded from the purview of the Bribery Act in the first place? The answer is because the real intent behind half-baked attempts at licensing is to create the path of least obstacles to local importers and their foreign suppliers. Even with privatization, it is the responsibility of the government to ensure that proper processes are in place for setting criteria and standards, for competitive bidding, and for the granting of licenses and contracts. That has not been the case at all in Sri Lanka, starting from 1977 and made worse after 2010.

Specific to the petroleum sector, the legislative changes in 2002 under Ranil Wickremesinghe and in 2006 under Mahinda Rajapaksa leaves one to opine if, after all, Mahinda Rajapaksa was continuing from where Ranil Wickremesinghe left. Is it now the other way around? And is national politics now reduced to the two trying to rise together via Ekwa Negitimu? Not to mention, as has been reported, the long distance conversations between Ranil Wickremesinghe and Basil Rajapaksa to consummate a no-contest electoral marriage between the UNP and the SLPP.