charindra chandrasena 00:06 Hi Riyadh, mr. Chandrasenal, mr. Rifai, mr. Fernando, how are you? I I started with him today and then went to you because there's no bias. I start from the left and then keep it Dhananath Fernando 00:19 consistent. charindra chandrasena 00:20 Four Qs. are down. Full prices are up. That is expected. That is expected to. That is expected by people like you, not by a lot of the population. They were not expecting a price hike of that magnitude magnitude. Speaker 1 00:40 Yeah. charindra chandrasena 00:40 Right. So your your sort of privilege, no, yeah, no, a lot of lot of people in Sri Lanka are not. Speaker 1 00:47 So, so Dana called it. I think I think actually he has to start the conversation because actually Dana, the the price is actually it's not technical. Even now, it's not cost reflective. No, correct. Dhananath Fernando 00:56 It still has to go up as per calculations. Hare. Oh, okay. That charindra chandrasena 01:02 brings me nicely to my point I was trying to make. This is particularly aimed at you and Advocata. Advocata keeps saying two things, two allegations, two accusations. Rather, I'm going to throw at you. Advocata keeps saying increase the prices, let it go, let it go, let it go, right? No consideration for the poor and the underprivileged. That's number one. Number two, Advocata was and mr. Dananath Fernando were calling for the liberalisation of the full distribution sector. Yeah, holds a plan. Saying that an open market, a free market, leads to better outcomes for consumers, and the best outcome would be one of the best outcomes would be lower prices. What is happening? That's what people asking. What is happening now? There are more players in the market, and the price is still super high. Dhananath Fernando 02:14 Yeah. charindra chandrasena 02:15 Who wants to take it? You can take it. No, I Dhananath Fernando 02:16 can take it. I'll start from the second question, Chari. So definitely, the more competition is better, so competition not necessarily bring prices down. It can also have other sorts of benefits. Now in this case, no player can bring the prices down because, as we all know, even the govern. Okay, let's say. Okay, let's leave my argument. I'll argue on the other side. Now, still having said all that, all what shall we say, new players in the market? Still, the majority market share is for the government, right? So, if the majority market share is for the government, why the CPC prices went up. Now people said no. When the government sells fuel, now the if you I'm just arguing it just for the argument's sake of it. Okay, we said when there's more competition, prices should come down. The other side said no. The government should sell it because then the prices can be managed. So I'm asking still having the government being the market leader, why still the government increase the prices if the government can give better prices? So that it it indicates the the this price hike is a global context. It's across the world. No government, no private sector can solve it because it's a geopolitical and I mean East West Asia crisis. That's number one. Number two. But we should also if someone asks actually the prices came down. Actually yes. If you recall when there was no crisis when Sinopec came, the fuel prices were three rupees slower at the initial stage. It was two rupees lower. I think then it was one rupee lower than the market price. That's number two. Number three is when there's competition. If you recall, when CPC had the entire before Lanka IOC entered the market. If you recall the quality of the fuel stations, they had that air pump, right? And there were no washrooms. And even if you go and check, like the call, I mean the the the fuel station run by Lanka IOC. Generally, it's accompanied by a supermarket, right? Generally, there are some, you know, I don't. Red Bull is not sponsoring us, but Red Bull or some energy drinks kept there. There's a air pump and there's a more sophisticated system there, rather than the the the quality of the station before. Even I saw in Anuradhapura, I think the station they offer for the for the. Whoever the the Buddhist devotees who are coming to Sri Mahabodhi, they are offering food and lodging. It's like a place that you can bring your food and have and go. So those things came as a result of the competition. It not necessarily the prices. I am saying even the prices came down, even the quality became better. Now this context, the prices went up, and again I think the the the prices of I mean as we started the conversation in our view the prices has to be still up, but I think still the two three main players have kept it as I mean the Octane 92 and Super D not Super Diesel the normal Diesel they have kept all three players have kind of the same prices, but you you can see the super diesel prices and the Octane 95. They have basically increased according to the market prices, which are significantly higher than what the CPECO is selling. And I am surprised that you know Octane 95 and Super Diesel being pumped by probably privileged people like Riyadh, and why the government is subsidising that? I'm not saying Riyadh. I'm not saying Riyadh, but you know these expensive. Speaker 1 06:08 I pump regular diesel. Dhananath Fernando 06:10 No, so as a result, like why are you using poor people? See, answering very quickly on your first question, that like okay, why what is happening to the poorest of the poor? No, definitely that has to be considered. That's why, Chari, we say this has to be accompanied by the social safety net reform. Reform in the sense you have to increase the social safety net. So the government charindra chandrasena 06:31 is actually talking about providing a sort of a direct Dhananath Fernando 06:35 cash transfer, charindra chandrasena 06:36 targeted transfer, right? Dhananath Fernando 06:39 Yeah. charindra chandrasena 06:39 But I don't think that has been implemented. Dhananath Fernando 06:42 But yeah, coming back to because what they are now doing is by keeping the prices. Not not now earlier still to an extent. Now even the cabinet minister said no. Spokesperson said they are giving 20 billion or something. So 20 billion is basically consume is a is a subsidy given for the poorest richest of the rich because 70 percent of the fuel is consumed by the most wealthiest people. It's obvious, and it was a World Bank report. Someone has asked me like whether the source is advoca or source is not advoca. It is a World Bank study was done, and it is in their study. It was mentioned 70% is quite obvious, right? Because generally your energy consumption is becoming higher and higher when your when your quality of life and your income levels goes up. So so that's the context. So that those are the answers for the so basically charindra chandrasena 07:33 now and and maybe Riyadh can start on this. But okay, so global crisis prices went up. Let's say that's understandable. President Trump yesterday said that he is in talks with Iran after he gave a 48-hour deadline. Halfway through that, he said we are in talks. I have extended that deadline, and even at the end of that extension of five days, he doesn't say that he's going to attack again. So it's it's very much a U turn on his part. I think he's he's trying to he's looking for an off off ramp here to get out of this because there are so many people. But my question is, after that statement and and the few positive signals he gave, oil prices went down again. Why is it that the oil prices? This is what people ask him. When the oil prices shoot up, immediately the fall immediately the fall price goes up. When the oil prices come down, doesn't immediately translate to the pump in Sri Lanka. So they ask him when are we getting the getting the benefit of that reduction? So Speaker 1 08:45 exactly okay. So I'll just go back to President Trump. One thing is the Iranian foreign minister said no discussion was held. That is number one. So and President Trump has a pristine record of contradicting himself, right? That is something that everyone agrees on. Sometimes in the same day. Sometimes in the same day. Maybe sometimes multiple times in the same day, right? So that is number one. Second is the price of fuel after he made that statement has come down by 15% Brent and you know Brent has basically come down by 15% So there is a rumour also going on because it has when President Trump when there's a bit of a very intense conflict going on, it has very profound impacts on the market. I'm talking about stocks and futures, right? So the futures came down by 15% There is now a bit of a talk going on in in the circles in the U.S. saying that there's insider trading going on now. So we don't know, charindra chandrasena 09:46 absolutely, right? We don't Speaker 1 09:47 know because the thing is, if you know, let's say if you are President Trump and I'm a trader and you tell, okay, I'm going to make a statement in another 10 minutes, you're going to short all your stocks, right? You're going to short your. I mean, basically futures, you're going to short your futures, right? charindra chandrasena 10:01 In fact, during the tariff tariff, the the Liberation Day tariffs, which was in April last year, they actually did a study of who benefited in the administration from the stock market the most. Speaker 1 10:19 Yeah, charindra chandrasena 10:19 and there were a few names that came up, Speaker 1 10:21 yeah, who had charindra chandrasena 10:22 invested just in time, exactly, charindra chandrasena 10:24 and then pulled out just in time, exactly, Speaker 1 10:27 right. So that is entirely up to the to the U.S. Securities and Exchange Commission to pull that up, right? It's there are these things, right? So that is number one. Second is actually let's come down to domestic issue. So when the prices went up, normally Sri Lankan the system is the price adjustment is done last day of the month. Dhananath Fernando 10:47 Last day of the month. Speaker 1 10:48 Last day of the month, 12 p.m. noon, right? It's basically midnight. You do the you do the midnight. You do the change. So this time they do the they did the adjustment midnight before the crisis. Then they did two further adjustments, if I'm not mistaken. Yeah. Right. So that was completely on. And today is the 24th, right? So it's the 24th. So two, three adjustments have come within a month, right? So and they have been rapid adjustments. So then, so why do you make adjustments? One thing is you need to be being cost effective at least. Okay, not to the. I don't think they have followed the formula, but at least some. But to the cost effective, they have come. Another reason they do that is stop hoarding. So that's why we have queues also. Sometimes people go they hold and they keep it and they sell it at a profit at a later day, right? Now if the government is increasing prices rapidly, and when the prices come down, they don't hold it and they keep it going for a while. Then technically, someone can argue then the greatest holder in the country is the government, right? Because if you are making price adjustment that rapidly, you have to make the downward trend also that rapidly. charindra chandrasena 11:58 The Speaker 1 12:00 right and and and in defence of the charindra chandrasena 12:02 government, and you can address this as well. Yeah, right. The government could say that fuel prices or oil prices started spiking up from the first of this month. They made the adjustment more than a week later, if I remember correctly. Right, right. So they could say that we didn't actually pass it on to the consumers immediately, even the hike. Right. So wait a bit. This benefit will also come to you, but it won't come overnight. Speaker 1 12:33 No, correct. So the thing is, that's what I'm saying. So I'm just telling in advance, right? If they did that, now the prices start coming down in the in the last 36 hours or whatever, or maybe 48 hours, right? So if it goes, let's say another five six days, I'm telling what can happen in the future. I'm not saying that they are going, they are going to do it or not going to do it. So if that happens in the next seven days, they have to change it. Like that means on 30, on the 30th of the month, that is the time frame, no, right? They have to make the change. So if that happens, then okay. And the other another reason is the Sri Lankan. I'm talking not this government, consecutive government for the last I know whatever years, no one sold petrol. The government I'm talking at a loss. No one sold it at a loss. The Ceylon Petroleum Corporation sold it at a loss, not because they sold it below cost. They sold it below when you add the taxes, right? That as the tax component, right? The tax component became the burden because it's very difficult to explain. Also, the Ceylon Petroleum Corporation, which sets which basically sets the price trend, is the biggest operator in the country, it is 100% owned by the treasury. Fuel is imported by the Ceylon Petroleum Corporation. Then there's a tax component that goes done up. Please just refresh my memory on how much it is. It's roughly about Dhananath Fernando 13:52 for tax component about for diesel. It also like it's based on the percentage. Percentage, yeah, out of the value, yeah, 18% VAT, Speaker 1 14:00 yeah, and there's a sales, yeah. SAL and excise duty. Dhananath Fernando 14:04 So it comes to about 100, 117 rupees for diesel and about 100 rupees for petrol. But again, it changes based on yeah, based on the price and Speaker 1 14:15 all that, right? So if they sold something, they say no, be you know because I'm just giving you single term. Me, Raja, power duty guna ni. That's not the case. The the the the government doesn't sell it at a loss. The Sinon Petroleum Corporation sells it at a loss because it's the price they are selling. When you add the taxes, they're selling it at they're selling it at below cost plus tax rate, right? But that tax money is already paid to the treasury. So take it at the government. That's what I'm trying to explain. This is a little bit difficult to explain. Where the government is not selling at a loss. It's a petroleum corporation. So the loss of the petroleum corporation later on the government will probably. I don't know how they say. Normally, what they do is they they give a treasury guarantee is the normal norm, you know. charindra chandrasena 15:05 So that that that that then translates to the banks. Speaker 1 15:09 It then it exactly. So that is the mechanism they they they work on. So now some people have argued currently there's a big tax component on fuel, and by the way, I don't find anything wrong with that because anywhere in the world the tax rate for petroleum apart from the oil, the petroleum producers like Iran, Libya, and all that. Someone said in Libya, 60 litre, the 50 for 50 litre full tank is just over $1 charindra chandrasena 15:33 on that tax component. Yeah, that tax component is passed on to the consumer. Yeah, it's Speaker 1 15:39 it's passed on the consumer. Yeah. So how charindra chandrasena 15:41 are you saying that that loss that is a loss to that is a cost rather to the CPC? It is Speaker 1 15:47 a cost because CEPC is a standalone. CPC charindra chandrasena 15:52 imports. Speaker 1 15:53 Yeah. charindra chandrasena 15:54 There is a tax component. Yeah. Speaker 1 15:57 Let's say let's say just to make things easy. Let's say CPC imports the landing cost. I'm not saying this is the landing cost. Yeah, the landing cost is 100. charindra chandrasena 16:04 Okay. Speaker 1 16:05 Then the tax component dana comes to about how much? About 30% Dhananath Fernando 16:09 18% value. Speaker 1 16:10 About 10. So say charindra chandrasena 16:11 25% will be or 2025. Yeah, I'm not. Speaker 1 16:14 We can't just recall. But we should have just written it down. So let's say there's a tax component. Let's say after 25% I think it's a little bit more. I think it's about between 2020. Okay, whatever. Yeah, charindra chandrasena 16:23 X amount. Yeah, Dana Speaker 1 16:23 is going to just check on that, right? They say X amount. So then it's added, and then you have the distribution charge and all that, which goes to the distributors, transport, insurance, all that. Because when the bowser goes, there's insurance cost, all that, and then there is a distributor commission. That is a petrol shed guy. He gets I don't know how much. I think he gets three bucks a litre or something like that, right? Where all that is put together, right? Now that component won't change because that's part of the direct cost of selling or distributing the fuel. Then you have the government taxes. No, that is a big chunk, right? So sometimes let's say they say they say no, you know we are selling diesel at 20 rupees below for the government is selling at a loss. The government is not selling at a loss. It's a CPC that sells at a loss, which gets again reimbursed by the government through either a treasury guarantee or either by they might print money. Of course, now they don't print money, but some other sort they finance. That's it. This is a very easy. But the the norm of any politician or anyone who says the government is selling at a loss is a lie. It's a Ceylon Petroleum Corporation that sells at a loss. Ceylon Petroleum Corporation is 100% owned subsidy of the government, but it's a standalone company. It's a legal entity, stand-alone company, like same as NSB, 100% owned by the government. What do you call Bank of Ceylon? 100% owned by government. People's Bank, 100% owned by government. Right? All of them are stand-alone government entities, right? So that is that is where the that is where this thing is now. For example, the the CPC has taken a lot of loans from petrol. Sorry, the the CPC, the petroleum corporation has taken a lot of loans from. They owe a lot of money to Bank of Ceylon and Peoples Bank, right? So Bank of Ceylon and People's Bank run massive holes on their balance sheet, right? If the Treasury Secretary tomorrow pulls out the guarantee, basically the banks are sunk. Basically they have to close the bank tomorrow, right? Because there's a huge liquidity on capital issue, because normally how the capital formation is done, tie one, tier two, tier three. So on tier one, the the the the the norm is the treasury guarantee in Sri Lanka or a treasury bond that is given is 100% risk free on domestic market, not international market. That's why I credited international doesn't equal to it equals to at one point it was basically default. Now of course we are now C we are C plus is it we Dhananath Fernando 18:47 are C we are C now Speaker 1 18:48 yeah C and C yeah we might go up right in the future so that was the reason we had issues on refinancing because we couldn't go for the foreign markets a classic case so there was a government LCE open on on on on on the energy market through a private prime private bank with AAA rating, but still the foreign supplier wanted a international prime bank that is operating in Sri Lanka to basically open the LC because the reason is they have internal systems that they have to follow because if the country rating is bad, they think even though the bank, the private bank's rating is triple A, still the country rating is C. charindra chandrasena 19:28 Right. So Speaker 1 19:28 there, so there's this whole thing that you have to go through. It's not very, it's not very content. Right. Okay. charindra chandrasena 19:33 Okay. So the so the nitty-gritties of that there, right? But the the fundamental question could be why it takes so long to translate the benefit of oil prices when it doesn't take so long to translate the cost stock. So, Charlie, the Dhananath Fernando 19:54 only solution is one month is to. I mean, you know, you have to bring in. Like ideally daily pricing or weekly pricing, it has to adjust because also we need to understand markets also work on perceptions. Now, when you know the Dhananath Fernando 20:08 global prices are going to go up, definitely even before the shipment comes, you know you increase the prices. It's same. No, I mean you are not taking a umbrella only when it rains. No, when you when you get an indication that it's going to rain, you are taking their umbrella because it works based on the perception. So that's the only I mean that's the main solution that we have. You have to bring it like daily pricing or weekly pricing because there is no point arguing. Okay, that was the previous stock and now we have to sell it under that stock. You know it doesn't the stock doesn't happen like that. No, it's like a rolling stock. It comes, goes. So basically, prices has to adjust, and then yeah, and Speaker 1 20:48 and then another thing is there's something that Sri Lankan generally we don't understand because normally if you take globally, if you take the commodities market, so commodities can be anything. No commodities market, basically they run on futures. There's a future price. No, Sri Lanka. We don't have hedging. We did hedging, and you know what happened there, right? So, right. So the thing is, okay, we don't have the expertise in this, right? But at least I mean, the government should get into it. So the thing is, what happens is like, but Dana said he brought a very good point, which even I completely forgot. The reason is, you know, perception, right? And the perception is the issue on the future price, right? So currently, what's happening in the U.S. What Trump said, it's a futures market that has crashed, right? It will not crash. Sorry, crash is the wrong word. It has come down by 15% So that is there because you know there is a futures market, and and people who are there, they basically hedge their bets. Speaker 2 21:40 Yeah, Speaker 1 21:41 there's enough thing that we do. charindra chandrasena 21:42 Futures market just for people watching is based on the outlook and projection. Speaker 1 21:49 Projection, exactly. charindra chandrasena 21:50 So, if Trump says that it is ending in a week, Speaker 1 21:56 yeah, charindra chandrasena 21:56 then the futures would improve, yeah, because they are expecting that to play out. Speaker 1 22:02 So, for example, if you take futures market, there are few things that go in. One thing is the U.S. rate because the Fed rate. Because if there's a Fed rate cut, prices go up because there's then there's a liquidity splash. So, commodities market get impacted, goes up. That's why when the Fed tightens, the price of fuel comes down. Right. That is one. Then other thing is basically opaque oil production, and if there's going to be a shock on the supply side, now this time what has happened is a complete supply side shock. Now, if you take Sri Lanka as an example, forget about everything else. Last time we had a fuel crisis; it was printing money, and there's this MMT madness and all that, and that basically what happened is it basically wiped out our domestic, basically wiped out our reserves, right? And it basically wiped wiped out the domestic banking system, right? And where you couldn't open ALC, charindra chandrasena 22:47 even Speaker 1 22:47 the private banks didn't have dollars, right? That was a completely different scenario. It wasn't a world scenario. Now the scenario is, you know, we don't have a banking crisis, so we don't, you know, government has enough. Government is loaded with cash, right? They have, I think, Dana, how much? Correct me on this? Because you are the numbers guy. Yeah, Dhananath Fernando 23:02 in in terms of you mean the debt? Speaker 1 23:04 No, not debt. The cash exam because what happened? They have they have about a trillion part. Yeah, yeah. Dhananath Fernando 23:08 They have about trillion, about 900. Oh, 900 million Speaker 1 23:12 part. So there is no money issue, and plus the reserves are there, and all that, and plus the private banks, they have enough dollars, no issue, because there is a lot of trading going on now. Because you need to have trading for for the private banks also to have foreign currency. So all that is happening. Now the problem is a supply side shock because no ship can come through. Absolutely. charindra chandrasena 23:28 So I want to move on to the next point also because we are we are running out of time. But basically we have a bit more time, but we we should cover this in depth. The couple of things. Let's finish this point and then go to the next one. Why Sinopec high? Okay, is can you explain the the reasons for it to be higher than CPC and in certain cases LIOC also? Dhananath Fernando 23:58 Yeah, it is now the prices are higher at Sinopec only for that 95 and super diesel, so there's a bit of a unclear area in this Petroleum Act because if you recall the prices revised by the minister, like he has the authority, still the prices are kept by them, but I'm I think there's a little unclear area. I saw they have a few articles being written on this because I think what they are doing is they are just you know editing the gazette notification saying as per 66 chapter or whatever as per the Petroleum Act they are revising the prices. But ideally, in my view, the prices has to I mean the price caps has to be removed. Sinopec should be allowed to sell at whatever the price that they want. Lanka YOC should be allowed to select whatever the price. Isn't charindra chandrasena 24:42 that what has happened? No, no, no. Dhananath Fernando 24:44 No, it's not. But that has happened. They are the government. That's why the on. That's why I said, on the pet on the two main petroleum products, 90 to octane and diesel across the board. It's the same price. The prices are different only on the nine. Octane and super diesel. charindra chandrasena 25:02 So you mean to say that the gazette has been amended to? I mean that no, not the gazette has been amended Dhananath Fernando 25:10 in the act. The actually the minister has powers even to set prices for other players. charindra chandrasena 25:16 Yes. Okay. So Dhananath Fernando 25:17 as per of my understanding, actually minister has set prices for others as well. That's why those two prices kept at the same time, same price rate. Sinovac. In charindra chandrasena 25:27 fact, I think that's what has been happening throughout. Throughout Dhananath Fernando 25:30 exactly, but Sinovec was was able to sell it at like three rupees lower earlier because it's lower the market cap price. Okay, but I think they cannot still sell at a higher price because there are two sides now. Because when the government sets the price, when Sinopec, I mean, when they try to sell at a higher price, and when Sinope, I mean, when when Cippeco sells it at a lower price, of course it's unfair. It's not a level playing field, right? Because you are paying the same taxes, and the government giving the subsidy as a market leader doesn't make any business sense, so I think that's where the challenge is. But ideally, our suggestion is you remove the market caps, like you have seen, and then you will see the real prices adjust. No, charindra chandrasena 26:14 I'm saying isn't that what has happened for those two types of fuel? Dhananath Fernando 26:18 Those the the other two super easy. Yes, it is what charindra chandrasena 26:21 I said. Exactly, and that's why I don't know whether has it officially happened. Yeah, I think it Dhananath Fernando 26:26 is officially happened. It is officially. No, in charindra chandrasena 26:28 the sense, I haven't seen any sort of publication or anything. Exactly. So that's Dhananath Fernando 26:31 what I. That's what I'm. I'm surprised why the government is subsidising super diesel and octane 95, while the other players are selling at like a steep higher rate, you have been. I mean, you have been quite. I mean, I'm surprised why it was the case. But I think it's a good decision that the prices were increased. I mean, not so. charindra chandrasena 26:51 You're saying they are subsidising the wealthy. Dhananath Fernando 26:53 Absolutely. I mean, isn't it very obvious? Yeah. But this is the point, Chari. Now, no one had the courage to say that the foreign prices needs to go up. I saw like they have been basically using what we said as like you know the basis saying that look even the independent think tanks are saying. So that's that's the sad side of it. Sad side of it is not that using our thing, but there's no one had the courage to say that this is the right thing to do, and don't. charindra chandrasena 27:22 But now people might blame you. That is just correct. Dhananath Fernando 27:25 Correct. They might blame me. But the problem is, if they don't increase the prices, they may have. I mean, further repercussions in coming months. Right? Then the currency will depreciate. Everything will go all over. charindra chandrasena 27:36 The thing is that consumers don't think long term like that. No, absolutely. It's day by day sort of business. Absolutely, Dhananath Fernando 27:42 and the other side is Chari. Don't forget every time when you face these type of crisis, you have always moved back to market principles. Don't forget, Khan Channar Vijayar gave the option for Sinope and RM Parks when we had the full crisis. And don't forget, when we were in queues, only Lanka IOC had a better distribution, right? Cipeto could not do that. So don't forget, like you're not only looking at markets only based on the price, whether it was available, whether the quality was good, whether it was reliable. All those factors has to be considered. People are, you know, questioning on like the pricing, even I am saying, even on all fronts, the market argument has won. If we are going for an argument, prices had come down under Sinope. Quality was better, reliability was better, petrol sheds quality have become better. They are contributing a tax revenue. Share market, so all over it has been better. Even on that argument, but charindra chandrasena 28:41 generally, then over over throughout history around the world, that is the case. No, where the first preference usually tends to be nationalisation, state control, and all of that. And when things go bad, only do you experiment experiment with private market forces and all of that. Dhananath Fernando 29:04 Very quickly, Charlie only a point that whether this was price cap was deliberately kept. I think it is because if you recall President's speech, he said now if you if you allow these guys to increase the prices, our prices are lower. Everybody will come here and we will not be able to you know, service the demand. Yes. So that's why Speaker 1 29:23 he and he also said that they are asking to leave. Yeah. They are saying that they can't. It's not sustainable for them. Absolutely. To go on this, so we have to think about it or something like that. Yeah. And the other thing is, other thing is very. See, we have to secure the oil first of all. I mean, the diesel or whatever. Because one thing is the we have a common terminal that everyone uses, CPSTA. Now the option is there for I mean option means that's how it happens. LIOC and Sinopec and all that. I'm pretty sure their own ships are coming and pumping. So at least the oil is coming into the country. Just imagine if they leave. So then there is this because in Sri Lanka the the. Common system, there is no contingency plan. There is no backup plan. Now, for example, I know because I do some, I do, I do some work on the work in the sense I do some interest in the energy sector. Some of things like, for example, let's say in gas and all, there is no contingency plan. Now, let's say we bought gas from, let's say the Middle East, now nothing is coming from the Middle East, so that means we won't have gas because on the tender there is no contingency plan built in. You charindra chandrasena 30:30 mean if we had been bought? I mean, for Speaker 1 30:32 some luck, I think I think to be honest, in Singapore they say Porta chance. It happened that time. Yeah, getting it from charindra chandrasena 30:40 the US instead of yeah, so Speaker 1 30:41 that was a complete flip. Nobody knew how that how that worked because I think one guy came and just beat it for it and he got it. charindra chandrasena 30:47 Okay, since we're talking about that, but also very quickly, two statements were made. India multiple times, both the Indian government, and LIOC local head, both of them said that don't worry, we have Sri Lanka covered. We will support for foal whenever this is at the height of the the war. Okay, when people are wondering where the foal is going to be available even. Okay, that then yesterday, was it yesterday or day before? Yesterday, Iranian ambassador press conference says, if Sri Lanka needs assistance, we are there. Speaker 1 31:30 You charindra chandrasena 31:30 know, and and it's sort of a reciprocal thing for treating their sailors nicely and all of that. How much value should we attach to these assurances because nothing is on paper. Speaker 1 31:43 Nothing is on paper, right? charindra chandrasena 31:45 You want to take? Who wants to take it? Speaker 1 31:47 Should I just take that part? Yeah. So the thing is, one thing is, even if it's on paper, there's a war going on. Now, for example, any ship that goes to the Middle East, their insurance is null and void, right? So insurances on paper, what are you, right? So there is a you know so disease so insurance claim it says the war natural disaster. Sometimes you have this null and void clauses. So now insurance is null and void. charindra chandrasena 32:10 It's called force measure. Force measure. Yeah. So so through acts of God essentially. Acts of God. Speaker 1 32:15 But the thing is, but the thing, but the thing is, no acts of God. I think war. No war charindra chandrasena 32:20 doesn't. So acts of God exactly catastrophe, catastrophe and all that, right? Speaker 1 32:23 So the insurances because the end of the day it's null and void, right? So that is a I mean insurance is a legal it's a legal tender no, it's it's agreement. So when something like that happens, how can you give any assurances? So currently, when a war is going on, even something is written, there's no assurance. That is number one. I'll give you another example. 18 hours ago, or I think 24 hours ago, Ukraine attacked. No, Russia said India buys its oil from Russia, right? And then they secure it, and then India has the biggest Ambani has the biggest single refinery in the world, right? So they bring it and they refine it from there. Let's say at least they are getting the Russian oil now because the Americans also said no issue for Russian these things. The sanctions are off for the moment. So at least then there is a understanding now that the oil will come from Russia. But one of the biggest exporting ports for Russia is in Leningrad, right? That that port was hit by Ukraine drones. So that means definitely Russian exports are going to get hit, which means again Indian supply is going to get hit, no. So do you understand this whole thing is not there's no easy solution to this because this is a day by day case. charindra chandrasena 33:33 Yeah. So you're you're saying it may not be feasible for them even if they actually mean that assurance that they gave exactly if they're serious about it may not be feasible for them to say. The other thing Speaker 1 33:44 is Iranians don't have Iran as a country doesn't have a big fleet, right? That's what I was wondering. Yeah, because normally oil is not delivered by a country fleet. It's done by you get private companies that do oil delivery. Oil and gas is charindra chandrasena 33:59 like Musk and yeah, Speaker 1 34:01 I know that. I mean, Musk is more into freight, but there are separate companies. Mostly, I think Greek companies. That's what these guys do. Now the problem is, Iran has been selling what we call in our language royal, right? And right, so basically they have a ghost fleet, right? So that ghost fleet has been supplied. Now the problem is, those ghost fleet also have to go back to resupply, no. So this is not a very easy thing. So I mean, if the if when the go sleep comes, what is the guarantee they can go to the port of ambrosian and resupply? Because currently there is a U.S. assault ship called the Tripoli coming in, and there is a place called the Kaga Island in in in off the shore of Iran. Kaga Island is only 90% of the Iranian oil exports are done. Oil and gas is done there. So now there's a story going on that the American marine fleet is coming and they are going to take over Kaga Island. So that's why saying there's too much. There's too much, too many grey areas. Actually, this whole thing is a grey area. So nobody can guess. Nobody can say anything. charindra chandrasena 34:57 Okay. So the final thing, unless you want to. To that, I think we had covered it. We have time, but if you don't have anything to add to that, is related thing. President and the government have said now that they are seriously thinking about utilising the Trinco oil tanks, and they are discussing with India. There's a certain amount that they are thinking about. Initial thoughts on that? Dhananath Fernando 35:27 Yeah, no. This is the this is another window chari in my view to do these reforms. One is you can adjust the full price formula. You can increase the frequency. Everyone would be open for that now, and then even like the prices can brought down. That's that opportunity, absolutely. And then the oil storage. One thing that we can think of is having a strategic reserve. And I don't know, this cost us billions to refurbish these oil tanks, but still, it's an opportunity. You can we we can we can utilise that. It was long delayed for for for completely unnecessary reasons, and that's what we need to do. Even what we suggested last time was also that the private players can be given also a mandate that they have to keep a percentage of the reserve, which will have a cost factor because you know storage is costly. But this is a time again to reform the CPC because in terms of CPC is not purely CPC. You know that there's this distribution that there you know there are other companies who are basically even for the Sinopec or whoever you have to still utilise some of the CPC. Something like what charindra chandrasena 36:35 was done to CB. Still done to CPC. Dhananath Fernando 36:38 This is the time. So so I think if if if if you might charindra chandrasena 36:44 do Dhananath Fernando 36:44 it. Yeah, if you are looking at all these reforms, this is the way to do it. And also in terms of gas, I think now we are procuring it through US. But always better to keep the options other side because imagine some something happens from US issue. Speaker 1 36:59 Let's say we have a cycle Katrina. Dhananath Fernando 37:01 So then, you know, you to keep that option. I mean, it could charindra chandrasena 37:03 be even even simpler. It could just be President Trump saving. We are not exporting anything. Yeah, we are not going to give you the exactly simple as that. Yeah, Dhananath Fernando 37:12 and also I think the previous question on these ambassadors' commitments. I think definitely they will support, but I think you to be cautious at the same time if you are trying to look into taking a side may not be because you know we are exporting and dealing with two kind of two extreme markets. You know, you our exports are to US, so you can't really upset US. At the same time, Iran, you have been your friend. You can't upset them. You can't also get the support from them. Like it looks like you're antagonising US. So you know, it's a difficult, difficult stakeholders to manage. Speaker 1 37:44 So there's one small thing I want to bring now. For example, this whole thing is going on the price formula. So technically, I'm just saying this is a completely accounting thing. So let's say the price formula. So there's an X amount of the government when they do the budget that they seek. Okay, for this particular year, so much of money, tax money, we are going to get from petroleum products. It's budgeted, right? So the thing is, it's not budget. It's budgeted on a on the quantity that is delivered and how much is used, and at a particular price. That's how budgeting is done. So currently, there's a the price of international oil has more than doubled. So it's done on a percentage on taxes. That means the government's revenue also goes up. Do you understand? Do you do you understand where I am going? So let's say petrol was bought, landing costs was 130% tax. They used to make 30 bucks. If the price of it has gone up to 2200, it's still 30% tax. Then it becomes 60 bucks. So you get to mean so the government treasuries income if they go with the present month. So what they can do is, I think that's what they are doing also because they are not going for the full price formula. Is they temporarily they reduce the number of taxes. So then it becomes a little bit crushing. That's why I said the government never sells at a loss when they bring that num the the the the tax rate down, then what happens is the price comes down slightly. Of course, their revenue also doesn't come down. The revenue is still consistent, so they have to play with the numbers. And this is this is something. This is basically the treasury's job, because the government also has a domestic thing. No, because end of the day, the fuel petroleum is one of the major tax components, right, which actually fuels countries' development or development, paying salaries, keeping the hospitals running, you know, public services and all that. So there is a thing. So temporarily, when prices go up, but governments what they do is the tax rate they bring it down temporarily. So then it becomes. So I think that's what they. This government has also done. They are bored down temporarily, but I don't think they are bored down a lot. But they are. I mean, I'm not exactly sure about the numbers. I think we need to work it out, right? So, but they have bored down definitely. That's why it's not defective. But Cinovic is apart from the normal diesel and the 90 petrol, the super diesel. I think they are selling it at market rate. So. So and there is a set of people who will go and buy. You know they don't want to stay in queues, right? That option is there, but on the other side also, the flip side also at some point the others also will figure out. You know we are selling here a subsidy. Why are we doing this? Dhananath Fernando 40:12 Yeah. Speaker 1 40:12 Right. We need to hit. So there are a lot of this thing that has been started. There is no clear solution. So we have to wait and see in the coming days. I think the biggest thing that we have to look after is what President Trump does. charindra chandrasena 40:26 Yeah, yeah, that's the thing. So the the five day deadline would be over by the time we meet. No, no, because the thing is, I think Speaker 1 40:33 the biggest mistake I think President Trump did was, you know, he got into something without exit plan because normally what they say is normally what they say is before you get into a business, you should have an exit plan, right? That's why charindra chandrasena 40:44 that's that's clearly not the way he works. I think he underestimated this because he had success in Venezuela earlier and even in Iran with the with that 12 day war, and he thought this would be get in, come hit hard, get out. Yeah, but that's that's not how Iran is thinking right now, you know, and the 12-day war was a good test. Speaker 1 41:04 And there's something that you really have to talk about the proxy war that's going on. Because if you take the Russia-Ukraine war, it's a proxy war because Ukraine is completely backed by NATO plus America, which is part of NATO, and Russia is indirectly supported by Iran and China, right? So now it has flipped the other way side. America is attacking America and Israel is attacking Iran, and Russia and China are playing doing the proxy. It's Russia's and Chinese Chinese to a certain extent proxy war because because I mean you have to think no. I think I think in a point. No, we'll charindra chandrasena 41:38 we'll we'll we'll leave the conversation there because that's a whole different room. Yeah, yeah, yeah. The geopolitics situation. But thanks, guys. Dana, you have a yes. So Dhananath Fernando 41:49 this content was brought to you free of charge thanks to our Advocata insiders. You can also become an advocacy side. It's just 12,000 rupees year, 1000 rupees a month. And what we plan to do is to build a policy community who support reforms like the one that we supported. Increase the fuel prices. You can see the the lines are slowing down. Of course, it is it is difficult, but otherwise things could have been quite worse than this. So to to voice out for difficult reforms, you should support institutions like Advocata. So one way to support it is become an Advocata insider. Thank you. charindra chandrasena 42:29 Right. Okay. Let's see what we have for next week. But till then, thanks, guys. Thank you. See you. See you. Cheers. Transcribed by https://otter.ai