An Echelon Media Company
Tuesday April 23rd, 2024

Sri Lanka opposition demands document of US energy deal

ECONOMYNEXT – Sri Lanka’s opposition legislators on Wednesday (08) demanded that the government table a signed document of a controversial deal between the Finance Ministry Secretary and US-based New Fortress Energy (NFE).

Speaking in parliament, opposition MPs insisted the House is responsible for public finance and the public have a right to know about the deal.

NFE said in July it had signed a framework agreement with Sri Lanka’s finance ministry to build a floating liquefied natural gas terminal and was also in talks to buy a thermal plant.

Finance Ministry Secretary S R  Attygala, who reports to Finance Minister Basil Rajapaksa, signed the agreement on behalf of the government.

Leader of National People’s Power (NPP) Anura Kumara Dissanayaka said Power and Energy Minister Gamini Lokuge had failed to table the agreement of the deal despite promising to present it to parliament five weeks ago.

“This agreement is signed by the finance ministry. So there is no point in discussing this on the day of the power ministry debate,” Dissanayake told parliament on Wednesday.

“OnDecember10, we have the finance ministry (budget) debate. So the treasury secretary should enlighten the parliament on the sale of this country’s strategic asset to a US firm so that we can discuss it during the debate.”

“If there is any deficiency or opinion on the deal, we have to discuss it on December 10. But this agreement has not been tabled in the parliament despite a significant time has lapsed.”

Responding to Dissanayake, Minister Lokuge agreed to present the agreement to parliament within a week and said there had been media reports of a non-disclosure clause that the agreement should not be disclosed for two years.

Top officials of the state-run Ceylon Electricity Board (CEB) had said the agreement cannot be made public as it has a non-disclosure clause and only a handful of government officials are aware of the agreement.

The agreement has stirred the CEB as the trade unions are against it. Many trade unions threatened ‘work to rule’ if the government does not repeal the agreement.

Some trade union officials have said in the event of a blackout, they will still work on a work-to-rule basis. Amid the work to rule, Sri Lanka faced a six-hour blackout last week, which a CEB top official claimed was sub-borage.

Sri Lanka had earlier called international competitive bids to procure a Floating Storage Re-gasification Unit (FSRU), on a 10-year Build Operate Own (BOO) basis.

Bids for a pipeline were called on a Build Operate Transfer (BOT) basis which will go to Sri Lanka at the end of the contract.

Gas supply was to be separately procured by the state at market prices on long term and spot mix to be decided.

However, with the tender already called, there were reports that negotiations were under-way with another company to build the FSRU triggering a controversy.

Though more than a dozen firms collected tender documents, there were only a few responses, energy industry sources have said. But all of a sudden, the finance ministry went ahead and signed the New Fortress Energy deal.

“It’s true that the finance ministry has the power to enter into the agreement. But it represents the part of the power conferred by the people of this country. The accepted norm is it can’t do whatever it wants and hide things from the people,” said Dissanayake.

“If there is something about the country’s power and energy, this parliament should be aware of it.”

Speaker Mahinda Yapa Abeywardena said he will ask the relevant minister to respond to the question.

Opposition whip Lakshman Kiriella said the parliament is responsible for public finance and the government should table the agreement in parliament.

Former Prime Minister Ranil Wickremesinghe asked the speaker to order Finance Ministry Secretary Attygala to present the agreement.

“If you order it today, then he will present it tomorrow,” said Kiriella. (Colombo/Dec08/2021)

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Sri Lanka single borrower limits cut to 25-pct of bank capital, SOEs also included

ECONOMYNEXT – Sri Lanka’s central bank has issued directions limiting loans to a singe borrower or a group of connected customers to 25 percent of Tier I capital, with state enterprises which turned out to be the biggest borrowers, also included.

In a 2007 direction, banks were allowed to give loans up to 30 percent of capital for a single customer and 33 percent for a group but the rules were widely violated in the case of state enterprises, which were used as off-budget vehicles to give energy and other subsidies.

Banks will have to limit exposures to 25 percent starting from January 2026.

According to transitional provisions published in the direction seems to indicate that some banks may have single borrower exposures of 85 percent or more.

They will be required to bring exposures down to 60 percent by 2027 and 25 percent by 2028.

Download the direction from here Sri-Lanka-single-borrow-limit-direction-2024

Energy utilities were made to borrow from state banks to run off-budget subsidies under plan avoid a price formula during the Rajapaksa regimes.

Sri Lanka’s state banks ended up with large debts to Ceylon Petroleum Corporation partly due to flexible inflation targeting (printing money to cut rates as soon as inflation fall triggering forex shortages) even when fuel was market priced in 2018, analysts have shown.

When rates were cut with inflationary open market operations, triggering forex shortages, CPC was barred from buying dollars and forced to get suppliers’ credit denominated in dollars.

The suppliers’ credits were later converted to dollar loans from state bank loans, usually after the currency collapsed from the inflationary rate cuts or inflationary open market operations to sterilize interventions or both, analysts have shown.

The CPC loans have since been taken over by the government.

Banks have also funded roads and other state projects.

“Licensed banks shall gradually reduce the exposures to Public Corporations to meet the maximum limit,” by December 2030 according to the direction.

“Public corporation shall mean any corporation, board or other body which was or is established by or under any written law other than the Companies Act, with funds or capital wholly or partly provided by the Government.”

Many of the newer state enterprises however have been suddenly set up under the Companies Act, unlike earlier where a specific act was passed by the parliament to set up corporation or a statutory authority.

Borrowings of CPC and CEB eventually hit the financial stability of state banks while actual bad loans were under-reported. Now the bad loans are being covered with a state capital injection.

Under an International Monetary Fund and World Bank backed program, the so-called ‘sovereign bank nexus’ is being severed to protect the banking system.

Government securities, central bank sterilization securities, loans guaranteed by multilateral lenders or high rated foreign banks are excluded. (Colombo/Apr23/2024)

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Sri Lanka exceeds tax revenue target by 6% in first quarter

ECONOMYNEXT – Sri Lanka’s revenue collecting bodies have outperformed and exceeded tax revenue target by 6 percent for the first quarter ended on March 31, State Revenue Minister Ranjith Siyambalapitiya said.

“After many years of difficult challenges, it has been possible to exceed the expected state revenue in the first quarter of 2024,” he said in a statement.

The government expects a revenue collection of 4,106 billion rupees in 2024.

“The reason for the economic crisis in the past period was the reduction in the level of government revenue. Considering the achievement of higher than the target in the first quarter of this year and the revenue pattern, the 2024 will become a year in which the revenue targets can be achieved,” he said.

The three tax revenue collecting bodies – Sri Lankan Customs, Excise Department, and Inland Revenue Department have collected 834 billion Sri Lanka rupees in the first quarter.

“It is a 6% higher than the expected revenue target of 787 billion rupees,” Siyambalapitiya said.

He said the Inland Revenue Department exceeded its target by 13 percent to 430 billion rupees compared to the target of 381 billion rupees in the first quarter of 2024.

He also said Customs Department has managed to reach the target of 353 billion rupees and the Excise Department has also achieved 96% of the revenue requests and earned 51 billion rupees in the first quarter.

The island nation has raised Value Added Tax (VAT), imposed new taxes, and increased personal income taxes to boost the revenue under an International Monetary Fund-backed reforms in return of a $3 billion External Fund Facility.

People have started to grumble over the government’s higher taxes without reducing some of the state expenditures. The government has been in the process to privatize some key state-owned enterprises. However, that process faced delays amid gradually rising protests against the move. (Colombo/April 22/2024)

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Sri Lanka rupee closes stronger at 300.50/301.00 to US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed stronger at 300.50/301.00 to the US dollar with the spot market becoming active in the second half of Monday, dealers said.

The rupee closed at 302.00/50 to the US dollar on Friday amid moral suasion.

On Monday a foreign bank sold dollars to the central bank around 302 levels, following by more sales, dealers said after trading started without proper spot market quotes.

On Friday a 302 level was indicated by some dollar sales, dealers said.

Sri Lanka’s rupee came under pressure over the last week, despite broadly deflationary policy, after the central bank collected large volumes of dollars in March.

Bond yields were flat as buyers awaited the next development in sovereign bond re-structuring, market participants said. There were both positive and negative sentiments among bond investors, dealers said.

A bond maturing on 15.12.2026 closed flat at 11.30/40 percent

A bond maturing on 15.09.2027 closed flat at 11.95/05 percent.

A bond maturing on 15.12.2028 closed flat at 12.15/25 percent.

A bond maturing on 15.09.2029 closed marginally higher at 12.25/35 percent from 12.30/40 percent.

A bond maturing on 01.10.2032 also closed flat at 12.40.50 percent. (Colombo/Apr19/2024)

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