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Friday June 21st, 2024

Sri Lanka CPC seeks fuel price hike amid Powell Bubble, currency fall

ECONOMYNEXT – Sri Lanka’s state-run Ceylon Petroleum Corporation is losing money as global energy prices go up, despite an earlier increase in prices, officials said as the rupee also fell amid money printing.

CPC last raised prices in June 11.

“At that time the price in the international market of a 92 Octane Petrol barrel was 78.80 US dollars,” Chairman Sumith Abeysinghe said.

“Diesel was 76.7 US dollars. By now the price of Petrol has increased to 92 dollars while Diesel has increased to 92.67 dollar.

“By August CPC has made a loss of 70 billion rupees. The only thing we can do is increase prices.”

The government also charges taxes from Petrol and Diesel. Unlike renewable energy where government gives subsidies in some cases at the expense of the budget deficit, Petrol and Diesel are a source of taxation.

“With this increase, currently CPC has loss of 14.56-rupee loss per litre on petrol,” Abeysinghe said. “And the loss of diesel has increased to 31.46 rupees per litre.”

“Up to August CPC has also 70 billion rupees. The main thing that the CPC has to do at a time like this is to increase the price.”

Global fuel prices are going up mostly due to the so-called Powell Bubble where the Federal Reserve is printing around 140 billion rupees violating its price stability mandate and trying to boost growth and unemployment, a failed strategy that led to chronic unemployment and stagflation in the 1970s.

The Fed is under pressure to stop printing money and hike rates with inflation at double the 2 to 2.5 percent levels it is supposed to generate.

In Sri Lanka money printed to keep rates down and boost growth has also led to currency falls and external troubles from which the country has still not emerged.

Sri Lanka’s current administration came to power criticizing a monthly fuel price formula put in place by the last administration to keep the domestic and external demand in check.

However in 2018 as the US also hiked interest rates to keep inflation in check, Sri Lanka printed money to target an output gap, triggering forex shortages, a currency collapse and earned a credit downgrade.

The CPC was made to borrow dollars, and it ran an 80 billion forex loss despite market pricing oil as the rupee it earned was parked in state banks in repos.

CPC is now seeking a 3.6 billion dollar credit line from Oman as money is printed creating forex shortages.

Energy Minister Udaya Gammanpila said the cabinet of ministers will have to approve a price hike.

“In October (CPC) is projected to lose about 10 billion rupees under current prices,” he said. “It can be more not less. Whether fuel prices are to be raised or not is a decision that the government has to take.

“We will inform the cabinet that we cannot bear this loss anymore. If the cabinet can give another relief they will tell. If not a price increase is necessary.

“It may not happen immediately. Last time it took three weeks of discussions to raise prices. I can say it will not happen in the next few days.”

Analysts have urged the central bank law to be tightened and commit to follow one monetary anchor so that economists cannot mis-use it to print money and boost growth.

There has been also been suggestions to incorporate specific sanctions for violating its mandate.

As long as politicians understand the concept of monetary inflation, they have to legislative power to control the central bank’s loose policy, abolish it and dollarize the economy, create a currency board like Singapore or Hong Kong, or have multiple currency competition. (Colombo/Oct08/2021)

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Indian FM meets Sri Lanka political leaders; focuses on committed deals

ECONOMYNEXT – Indian External Affairs Minister (EAM) S. Jaishankar met President Ranil Wickremesinghe and a range of political leaders during his visit to Sri Lanka, focusing on commitments made by Sri Lanka to India, including land and energy pipeline connectivity.

Sri Lanka has committed to renewable energy deals for the Indian Adani group, Trincomalee port development, an investment zone around the port, a bridge between the island nation’s Northern Mannar and South India’s Rameshwaram, a power grid, and an oil and gas pipeline between the two nations.

Though most of the committed projects have been discussed and some already signed, they face delays amid public protests, court cases on environmental concerns, anti-Indian sentiments triggered by high prices of renewable projects, local politicians as well as perceived Chinese influence, analysts say.

India has been pushing Sri Lanka to fast-track these deals under Prime Minister Narendra Modi.Jaishankar’s visit also comes ahead of Sri Lanka’s presidential polls later this year.

Jaishankar met President Wickremesinghe in a one-on-one meeting, Prime Minister Dinesh Gunawardena, and Foreign Minister Ali Sabry before delegation-level talks with Ports, Shipping and Aviation Minister Nimal Siripala de Silva, Agriculture and Plantation Industries Minister Mahinda Amaraweera, and Power and Energy Minister Kanchana Wijesekera.

“Appreciated the progress made on various bilateral projects and initiatives. Under President Ranil Wickremesinghe’s guidance, we discussed the way forward for India-Sri Lanka cooperation, especially in power, energy, connectivity, port infrastructure, aviation, digital, health, food security, education, and tourism sectors,” Jaishankar said on his official Twitter platform.

He also met former President Mahinda Rajapaksa, opposition leader Sajith Premadasa, and leaders of various political parties from the North, East, and the upcountry region.

“Interaction of EAM with the leadership of the Government of Sri Lanka provided an opportunity to review and accelerate progress in the multifaceted India-Sri Lanka partnership,” the Indian External Affairs Ministry said in a statement.

One of the key focus areas of discussion was the Vision Document adopted by President Wickremesinghe and Prime Minister Modi during the Sri Lankan leader’s visit to India in July 2023.

“Discussions added momentum to the ongoing projects as well as initiatives for promoting connectivity in all its dimensions, particularly in domains of energy, physical infrastructure as well as economic and people-to-people ties.”

Jaishankar also met leaders of Sri Lanka’s upcountry Tamils, who originally came from India as plantation workers. He discussed development and devolution of power with an eight-member delegation of Tamil leaders from the Northern and Eastern provinces, including Shanakiyan Rasamanikkam and M. A. Sumanthiran.

India helped Sri Lanka with financial and humanitarian aid when the island nation faced an unprecedented economic crisis amid delays by the International Monetary Fund loan to rescue Sri Lanka.

“Following Sri Lanka’s economic recovery and stabilization, forging deeper long-term economic cooperation was underlined as a priority for sustainable and equitable growth of Sri Lanka, and mutual prosperity in the Indian Ocean Region,” the Indian External Affairs Ministry said.

Though the Sri Lankan government has claimed that Jaishankar’s visit was a precursor to Indian Prime Minister’s visit, the Indian External Affairs Ministry did not mention anything about a possible Modi visit.

This visit is Jaishankar’s first bilateral visit after the formation of the new government.

The Adani wind power project in the Northern district of Mannar has seen some public protests over environmental concerns after some experts said the project has failed to conduct a proper Environmental Impact Assessment (EIA). Critics also protest against its transparency.

President Wickremesinghe, opposition leader Premadasa, and Marxist Janatha Vimukthi Peramuna (JVP) leader Anura Kumara Dissanayaka are expected to contest in the election to choose the island nation’s 8th leader.

Sri Lankan leaders have been under pressure from India in the past two decades amid increasing Chinese influence in the island nation, seen as a security threat to India, analysts say.

The docking of a Chinese nuclear submarine in 2014 led to a dramatic government change in the 2015 presidential poll with the ousting of former leader Mahinda Rajapaksa, who later accused India of orchestrating his defeat.

Rajapaksa’s brother Gotabaya in 2021 unilaterally canceled a key port terminal project given to India’s Adani group after promising Jaishankar to sign the deal.

Gotabaya Rajapaksa was later forced to flee the country in 2022 after mass protests due to his economic policies. (Colombo/June 21/2024)

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Sri Lanka car permit tax losses Rs14bn in two years of partial disclosure

ECONOMYNEXT – Sri Lanka has lost 14.3 billion rupees in taxes from car permits given to public servants, including doctors, military officers, central bankers, finance ministry and tax officials, in 2019 and 2020 information disclosed by the finance ministry shows.

Inclusive of some 2021 tax losses when imports were banned for the rest of the year, 14.4 billion rupees of foregone revenue from a waived luxury tax is shown.

The list only shows waivers of a so-called ‘luxury tax’ imposed on larger vehicles above a certain value and size.

The list does not show other vehicles imported under car permits such as double cabs or cars below a certain size.

The list also does not seem to include tax free cars imported by politicians.

In 2019, Sri Lanka has lost 8.3 billion rupees from the luxury tax on car permits and in 2019 the loss 5.92 billion rupees.

In 2021 when car imports were stopped as the central bank started printing money to cut rates and target ‘potential output’ only 85.6 million rupees were lost.

Among the biggest tax waivers of over 10 million rupees went to some doctors and military officers. Doctors were among the biggest users of tax slashed car permits in the list.

Sri Lanka at one time did not allow cars imported by state workers to be transferred for many years.

But reportedly after Customs raided a finance company involving a fleet of vehicles, the rule was relaxed by the then President.

Among the largest tax waivers listed were given to Rolls Royce and Maclaren assigned to Melwire Rolling (Pvt) Ltd.

The 45.6 million rupee Rolls Royce was given a 42.1 million rupee tax waiver.

The 41.46 million McLaren was given a 37.9 million tax waiver.

There were also a large number of Audi A5 and Q2 vehicles listed at prices over 80 million rupee. It is not clear whether the disclosure is an error. The market value of the A5 and Q2 are much lower.

Up to end 2023, 138 cars imported under a migrant worker remittance scheme was listed to lose 436 million rupees in luxury taxes.
The total for the three years was listed at 14.86 billion rupees, involving 2,034 cars in 2019 and 1,470 cars in 2020.

It is not known how much the total tax losses or total vehicle imported through ‘car permits’ is. (Colombo/June20/2024)

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Construction of Sampur solar power plant to begin mid-July

ECONOMYNEXT – Joint energy projects between India and Sri Lanka, including the Sampur solar power plant due to begin next month, took centre stage during bilateral discussions between president Ranil Wickremesinghe and visiting Indian External Affairs Minister S Jaishankar on Thursday.

Wickremesinghe and Jaishankar discussed initiatives aimed at enhancing energy connectivity and developing the renewable energy sector, a statement by his media division said.

“Significant attention was given to plans for an LNG supply, a proposed petroleum pipeline linking the two countries, and advancing oil and gas exploration projects. Additionally, it was announced that construction of the Sampur Solar Power Plant is set to commence in July 2024.”

The visit comes amid delays in key Indian projects including land, oil and gas pipe, and grid connectivity deals, Adani’s wind power plant deals which are facing a legal battle, and port and investment zone projects in the Eastern port district of Trincomalee.

Indian supported projects for developing Trincomalee and expanding the Kankasanthurai port, the ongoing development of Jaffna Airport and Colombo Airport, and the expediting the unique digital identity card project were discussed.

The efficiency of projects supported by the Indian government aimed at bolstering Sri Lanka’s liquid milk industry and fertilizer production, were also examined.

Sri Lankan leaders have been under pressure from India in the past two decades amid increasing Chinese influence in the island nation as the move is seen as a security threat to India, analysts say. (Colombo/Jun20/2024)

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