ECONOMYNEXT – Sri Lanka has decided not to go ahead with a 3.6 billion US dollar fuel credit line agreement with Oman due to conditions on the deal, a cabinet spokesman said on Tuesday (25).
In October, the cabinet of ministers approved the deal as the island nation was facing a forex shortage after the central bank had printed excess money.
“When we were discussing the conditions related to the Oman deal at length, there were some concerns related to the conditions. Therefore at this juncture, the Oman deal is not an enforceable proposal,’ co-cabinet spokesman Dullas Alahapperuma told a weekly cabinet media briefing.
“With the situation we faced during that time (last year), we thought it was an excellent proposal. But now it has become an non implementing proposal.”
Sri Lanka has earlier rejected a request by Oman to grant them an area to look for oil in lieu of interest payments on the credit line and was to go ahead with the loan agreement which was to be given in 12 monthly installments of 300 million US dollars each with a repayment schedule of 15 years after a five-year grace period.
Sri Lanka is now facing a fuel crisis, and the fuel shortage has resulted in announced and unannounced power cuts across the island.
The state-run Ceylon Petroleum Corporation (CPC) has refused to provide fuel to utility provider Ceylon Electricity Board (CEB) without payments made in US dollars.
The fuel shortage is one of many crises Sri Lanka is facing due to forex shortage after the central bank printed record amounts of money last year.
The CPC has incurred massive losses in the past. In a 2018 money printing bout, the CPC ran an 80-billion-rupee forex loss on dollar loans and suppliers’ credit despite market pricing oil.
Sri Lanka is in a forex crisis after the central bank printed money to finance the deficit and keep rates down after cutting taxing, instead of allowing rates to go up and finance the gap with real borrowings, crippling bond and forex markets.
The CPC in the past has borrowed dollars from domestic banks and suppliers as the central bank printed money to keep rates down and triggered forex shortages.
The CPC had run up about 3.5 billion US dollars in loans from the two state banks up to end last year, parliament had been told.
Sri Lanka has received a 500 million US dollar oil credit line from India after the island nation signed the Trincomalee oil tank farm deal with India early this month. (Colombo/Jan25/2022)