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Tuesday April 23rd, 2024

Sri Lanka trade unions to protest controversial energy deal

ECONOMYNEXT – Thousands of Sri Lanka’s strong trade union members from state-run power, oil, and port firms are to protest on Wednesday (03) against a liquid natural gas (LNG) deal with US-based New Fortress Energy, which critics say has circumvented standard tender procedure.

Sri Lanka plans to sell a government stake in a combined cycle power plant for 250 million US dollars to the US-firm but critics say the involves the purchase of up to 6.0 billion US dollars of LNG fuel in the next few years and has undermined and circumvented an ongoing tender for a floating terminal.

The protest will go ahead as planned despite President Gotabaya Rajapaksa declaring many public services including ports, post, railway, and fuel as essential services.

The trade unions of state-run Ceylon Electricity Board (CEB), Port, and some trade unions related to the Ceylon Petroleum Corporation (CPC) will come to Colombo and protest in front of the CEB head office, a trade union leader said.

“Except those needed to restore a power failure, around 98 percent of CEB employees will join the protest,” Ranjan Jayalal, Convener of the CEB trade unions, told EconomyNext.

“CEB engineers will also join, as well as trade unions from ports and the CPC refinery.”

There could be a maximum of 20,000 employees from all unions that have pledged support to the protest.

“This is a struggle we are going for on behalf of people. We have not been shown the signed agreement with the American New Fortress Energy. We may lose state control in the power sector if this happens,” Jayalal said.

“See what has happened to the country. Our country has no choice, but is compelled to buy contaminated fertilizer shipment from China. We had no choice but to keep quiet when another foreign nation did not allow our lion flag to be hoisted in Colombo South harbour. The same thing will happen with this,” he warned.

Already at least 11 coalition partners of the ruling Sri Lanka Podujana Peramuna (SLPP) have revealed how the deal went through at the cabinet.

Industries Minister Wimal Weerasinghe last week said Finance Minister Basil Rajapaksa brought up the cabinet paper on selling a 40 percent share in Yugadhanavi to the US-based energy company when ‘other business’ in the agenda was discussed. There was no approval given, claimed Weerawansa.

“But in the minutes of that cabinet meeting, it is stated that the proposal was approved after deliberations. This is an utter lie,” he told a meeting of all 11 coalition partners who are opposing the deal.

Energy Minister Udaya Gammanpila speaking at the same event said the way the deal went through was unprecedented and has never happened in any other previous government which he had considered highly corrupt administrations.

Finance Minister Rajapaksa was not immediately available for comment on the deal being signed allegedly outside the tender process.

Opposition parties however have warned that the coalition partners’ protest against the deal could be a drama to divert the attention of a furious public from the high cost of living, lack of foreign exchange to import goods, not providing fertilizer on time, and job losses during the COVID-19 lockdown.

Trade unions and legislators including replaced power minister Dallas Alahapperuma have voiced concern over the decision to sell the LNG plant to the US firm New Fortress Energy, which critics say will commit state-run CEB to buy large volumes of LNG or pay compensation.

The nationalist SLPP has maintained an anti-US stance before the election and promised the country not to sell any assets to foreigners.

The central bank on Tuesday said the first tranche of a $250 million US dollar deal is expected within the next two months. (Colombo/Nov01/2021)

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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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Air Asia, SriLanka’s FITS, Hayleys bid for SriLankan Airlines

ECONOMYNEXT – Malaysia’s AirAsia group, FITS Aviattion of Sri Lanka and Hayleys are among bidders for state-run SriLankan Airlines, a statement from the State-owned Enterprises Restructuring Unit said.

Dharshaan Elite Investment Holding (Pvt) Ltd, . Sherisha Technologies Private Limited and Treasure Republic Guardians Limited are the other bidders.

The responses will be evaluated to choose qualified investors.

International Finance Corporation, as Transaction Advisors for the divestiture of SriLankan Airlines Limited, will continue to advise the government, the statement said. (Colombo/April22/2024)

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