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Sunday July 14th, 2024

Sri Lanka CPC demand end to circular debt in power amid forex crisis

ECONOMYNEXT – Sri Lanka’s state run Ceylon Petroleum Corporation is seeking an end to ‘circular debt’ from the island’s power utility as losses of the utility due to controlled prices is landing on the petroleum firm as unpaid debt.

Sri Lanka is facing sporadic power cuts in January as the utility runs out of fuel with a 300 MegaWatt coal plant out of commission, while its debt to the CPC is mounting due to losses.

The losses are then funded by borrowings from state banks or suppliers.

Circular Debt

Energy utility debt ratchets up every time the Central Bank prints money to keep interest rates down, which also cause forex shortages and eventually currency collapses, adding to the loses and never ending ‘SOE price reforms’.

In countries with soft-dollar pegs that print money and run into forex crises and end up in the International Monetary Fund, ‘circular debt’ between petroleum and power utilities and the power utilities, and the Independent Power Producers continue to build up in each credit cycle.

The losses of the utilities mount as the Fed prints money and drives energy prices up in loose policy. As the Fed later tightens policy the currency of a soft-pegged central bank collapses, adding more losses to the state owned power and petroleum utilities.

Energy prices are then hiked in ‘SOE pricing reforms’ and two to three years later the central bank again prints money to keep rates down and the rupee falls again, leading to never ending ‘price reforms’ amid forex crises.

With no political will or knowledge to reform the central bank to restrain the arbitrary powers of the Monetary Board to keep rates down, the cycle keeps repeating with the currency peg usually collapsing each time US Federal Reserve tightens policy – which is usually every 4 to 5 years.

Pakistan and Sri Lanka, which have the worst central banks in the region are the top victims of circular debt.

Sri Lanka again facing forex shortages as money is printed to keep interest rates at 6.0 percent, which is half the 12.1 percent inflation seen in the 12 months ending December 2021.

Most of the money is now being printed to sterilize interventions in the forex market to clear fuel and other items (giving reserves for imports).

Sri Lanka central bank’s inflation is currently is just that of the State Bank of Pakistan.

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In Sri Lanka however the losses are now coming mostly from the power sector and not fuel, which has seen two price increases, despite the current administration coming to power based on a promise to fix fuel prices.

Sri Lanka’s power regulator has failed to raise tariffs of the Ceylon Electricity Board or have a mechanism to pass on higher fuel costs when liquid fuel plants are used or global prices go up.

Sri Lanka has also blocked a cheaper coal plant partly egged on by renewable energy activists undermining the long term generation plan of the utility and landing the country in a crisis, critics say.

Lack of price hikes in recent years to compensate for the loss of the coal plant has further worsened the finances of the CEB.

In an unusual cascading policy error, which has been repeated in Sri Lanka CPC has in the past funded its losses with dollar debt when the central bank prints money to create forex shortages, with the utility also barred from buying dollars.

As a result the CPC ran massive ‘Nick Leeson losses’ each time the currency collapses due to money printing. In the 2018 money printing cycle, it ran up dollar debt when the central bank printed money and a massive forex loss when the rupee collapsed.

Energy Prices

Unlike the regulated prices of the CEB, the CPC whose pricing is under the control of the Treasury has made multiple price hikes as money printing depreciated the rupee and global prices went up in the intervening period.

The CPC has in the past also kept furnace oil to CEB fixed, when global prices fell.

The CEB has overdue payments of 91 billion rupees to Ceylon Petroleum Corporation.

“By April – May 2020, CEB had to settle around 86 billion rupees for the fuel they purchased,” CPC Chairman Sumith Wijesinghe told reporters.

“With the Covid situation, the Finance Ministry provided 50 billion rupees to the CEB to settle their debts. CEB used some of that money to settle the debt to us and with that the debt decreased to around 41- 45 billion rupees in 2020.

“But in 2021, with the amount they purchased on credit, now have a debt of 91 billion rupees’ debt to the CEYPETCO. We were discussion on how they can settle this. But now we are discussing on how to get the diesel to the CEB.”

Wijesinghe said, despite the debt, CEYPETCO will provide the necessary amount of diesel to generate power for the next four days; however they have asked the CEB to provide money to purchase diesel they want in future weeks.

“Today to import one litre of diesel it cost 146 rupees. But we sell it to 121 rupees, even for the CEB. So we are having a loss of 25 rupees per litre when selling,” Wijesinghe said.

“CEB is also running on loss when they sell electricity. So they have to calculate how much money is needed to import diesel and the loss will make by both state owned companies.”

Wijesinghe said, CEYPETCO is supplying 1500 metric tons of diesel per day for electricity generation.

Not Original Plan

However the state-run Ceylon Petroleum Corporation said the CEB had not originally asked for furnace oil in January 2021. CPC had earlier shut down its refinery saying furnace oil was not required.

“The CEB plan for the January, 2022, was to generate power through hydro, solar wind and coal,” Ceylon Petroleum Corporation Chairman Sumith Wijesinghe told reporters.

“That was their expectation. However, with the sudden break down in Norochcholai coal power plant, 300 MegaWatts of power was lost to the main grid.

“To fulfill that they needed to start the Kelanitissa power plant. That is why a demand for fuel increased.”

Sri Lanka has been facing sporadic power cuts as fuel to the Kelanissa Combined Cycle Plant ran out. On Tuesday a gas turbine also tripped due suspected low fuel pressure.
(Colombo/ Jan 14/2021)

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Ex-US President Trump shot at in campaign rally

ECONOMYNEXT- Republican nominee to the upcoming polls and former US President Donald Trump has been shot during a campaign rally, media reports said.

The bullet grazed the ear of Trump, who is reported to be doing well.

The gunman was shot and killed by secret service snipers within second of firing the shots at Trump.

At least one civilian was killed reports said.

Television footage showed blood in Trumps ear.

As he was hustled out of the venue by Secret Service officials Trump was seen shaking his fist in the air. (Colombo/July14/2024)

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UNESCO DG to discuss archaeological endeavours in Anuradhapura, Sri Lanka: President

ECONOMYNEXT – Sri Lanka’s president has said that he will discuss initiatives for long-term archaeological endeavours in the Anuradhapura city with visiting UNESCO Director General Audrey Azoulay.

Azoulay will visit Sri Lanka from July 16-19 and take part at the celebration of the 75th Anniversary of Sri Lanka’s membership of UNESCO at the Nelum Pokuna Theatre in Colombo.

She will also travel to UNESCO World Heritage Sites around the island, the Ministry of Foreign Affairs said.

“I have invited the Director General of UNESCO to visit Sri Lanka and discuss initiatives for long-term archaeological endeavours in the Anuradhapura city. Several universities overseas have shown interest in supporting us for these activities, and we are moving forward with their collaboration,” Ranil Wickremesinghe said.

“Anuradhapura boasts a rich history spanning over a millennium, once renowned as a hub of trade and economics. Preserving and exploring this ancient city’s archaeological treasures remains a significant endeavour.”

“New archaeological efforts in the Anuradhapura district are now imperative,” Wickremesinghe said during a ceremony to inaugurate a 150-kilowatt solar power system installed by the LTL Group at the Sri Maha Bodhiya premises in Anuradhapura on Saturday (13).

Wickremesinghe pointed out that UNESCO has undertaken extensive archaeological projects in Angkor Thom in Cambodia, and Luang Prabang in Laos.

“However, we have not taken the necessary steps to implement these activities in Anuradhapura city. Therefore, I have advised both the Department of Archaeology and the Cultural Triangle to undertake these initiatives.”

These efforts are part of a comprehensive program aimed at establishing Anuradhapura as a globally renowned city, Wickremesinghe said.

While Sigiriya has gained international fame, Sri Lanka has not adequately highlighted Anuradhapura’s historical significance as a major trade and economic center in the past, the president pointed out.

“Cities like Tanjore (Thanjavur), Madurai, and Sanchipuram are often discussed, yet Anuradhapura, the fourth city, has been overlooked. Therefore, it is crucial to develop Anuradhapura city.”

As part of these initiatives, preparations are underway to establish new hotels in Anuradhapura, which will contribute significantly to its development, Wickremesinghe said. (Colombo/Jul13/2024)

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Government committed to improving living conditions in Jaffna: Sri Lanka PM

ECONOMYNEXT – Sri Lanka’s prime minister, who is in Jaffna “to monitor the progress” and “get a little feedback” has said the government is committed to improving living conditions of the people in the northern peninsula.

“This government is dedicated to improving the living conditions of the Jaffna Peninsula,” Dinesh Gunawardena told a Jaffna District Coordinating Committee meeting on Friday, according to a statement by his media division.

“In order to increase the living conditions, we have embarked on an increase in most of the expenditure needed by the departments, and also special allocations for rural and urban development in the local government area.”

Nationalist Gunawardena met with Tamil politicians at the Jaffna Divisional Secretariat Office and participated in the distribution of rice and egg incubators for low income families.

“A special privilege to be with you all, in order to monitor the progress made by all of you, as well as to get a little feedback where we stand today in relation to the reports given.”

Gunawardena joins a string of leading political figures who have visited the north ahead of upcoming polls.

The government was, he said, “committed to improve the services and living conditions, therefore, to provide the necessary infrastructure for developments, which means much to your area.”

The prime minister said he appreciated the efforts of farmers because “farmers are all private sector, I would say. Let us not forget, farmers are all in the private sector, either in the ownership or in the tenancy. They are private contributors to the national development of the economy.”

The poverty numbers are “fairly managed” in the country. Gunawardena said, pointing out that poverty was a key problems in any economy. “Any country, you would agree with me, the richest country, in the United States even, food stamps have been given. So all economies the world are going through difficult situations in relation to the poor.

“We have to look after the poor especially in these remote villages of the Northern Province…”

Minister Douglas Devanada, MPs M A Sumanthiran, Angajan Ramanathan, C Vigneshwaran, Dharmalingam Siddharthan, and other officials participated in the meeting. (Colombo/Jul13/2024)

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