CPSTL is the common user facility company established to facilitate the petroleum storage and distribution activities in Sri Lanka.
CPSTL officials said that the diesel will however be subjected to further tests before a final decision is taken on the consignment.
LIOC meanwhile confirmed that the diesel had been rejected and will be returned.
Last year the state owned CPC also had to deal with contaminated petrol and diesel from a registered supplier. CPC also had to suspend a stock of contaminated jet fuel.
Through newspaper advertisements CPC had later called for tenders to purchase oil.
Tenders had been called for Gas oil, 90 octane and 95 octane petrol and Jet fuel.