ECONOMYNEXT – A shortage of foreign currency and a credit rating downgrade have forced Sri Lanka’s sole, 50,000 barrel-per-day oil refinery to close from January 3, the island nation’s energy ministry said on Thursday.
However, the ministry assured consumers that there will not be a fuel shortage due to the closure.
It will be the second time the Iran-built refinery is forced to close after the ministry did the same on November 15 owing to a foreign exchange shortage at the time.
“Sapugaskanda oil refinery will be closed from January 26 due difficulties in purchasing crude oil owing to the foreign exchange crisis in the country,” the energy ministry said in a statement.
“The Petroleum Corporation Management is preparing to resume operations before January 30 once it gets an adequate supply of crude oil.”
“Crude oil supply from the Singapore firm, which is given Sri Lanka’s long term crude oil supply contract, will start from January 26.”
The energy ministry’s statement came a day after the central bank said its foreign reserves have almost doubled to near 3.1 billion US dollars from November ‘s 1.6 billion US dollars, which was enough for less than one month’s imports.
Sri Lanka suffered another credit rating downgrade early this month by the Fitch rating agency after the central bank failed to ensure foreign inflows according to a plan it had launched on October 01.
The ministry also said Sri Lanka has to inform relevant suppliers about the purchase of Murban crude used in the Sapugaskanda refinery, 90 days in advance.
“In addition to that, emergency purchase of crude as an alternative also has failed due to the shortage of foreign exchange,” the energy ministry said.
“It has also become difficult to buy crude on credit because Sri Lanka’s credit rating has been downgraded to a lower level.”
However, the energy ministry said there will not be a fuel shortage in the country because Sapugaskanda refinery supplies only 14 percent of the country’s petrol demand and around 29 precent of diesel.
Sri Lanka closed the refinery for 50 days on November 15 to save foreign exchange for food and medicine, Petroleum Minister Udaya Gammanpila said as the country faced severe foreign exchange shortages due to loss of credibility of a US dollar peg following excess money printing by the central bank.
The refinery resumed operations in 22 days after a crude consignment arrived in the country on December 03.
Sri Lanka has been in discussion with India and Oman for 500 million US dollars and 3.6 billion US dollar fuel credit respectively, but the agreements have yet to be finalised. (Colombo/Dec30/2021)