The rapid depreciation of the rupee and an anticipated ballooning of the Sri Lanka’s oil import bill, have forced Sri Lanka for the first time to secure Government-Government (G-to-G) agreements with several oil-producing nations–including Saudi Arabia, Qatar, Kuwait, Oman, the United Arab Emirates and Russia— on long-term credit according Sri Lanka’s Sunday Times.
Government owned Ceylon Petroleum Corporation (CPC) Chairman Sumith Wijesinghe said the discussions with the embassies of these countries were started amid indications that Sri Lanka’s fuel bill would rise even further in the future. The objective is to explore the possibility of securing G-to-G deals to import crude oil at concessionary rates using a special quota system under a long-term payment scheme.
At present, the CPC buys oil through foreign traders and suppliers.
While the Sapugaskanda oil refinery had been designed to run on Iranian light crude, the country cannot import Iranian oil due to United States sanctions on that country, Energy Minister Udaya Gammanpila pointed out.
“As such, we are importing what is known as Murban Crude Oil for the refinery,” he said. “This is manufactured primarily in the UAE.” This is one reason why Sri Lanka has opened talks on security oil-purchase agreements directly with the UAE and other oil-producing nations.”
Sri Lanka usually imported crude on 270-day-credit offered by traders, Minister Gammanpila said. “Therefore, we need some kind of credit arrangement with them to implement this oil importation on G-to-G basis,” he pointed out. “We are negotiating with several countries to get the best deal.”
CPC chairman Abeysinghe said Sri Lanka was importing oil on long term credit. “It is only now that we are paying for oil imports from the first quarter of 2020,” he said.
“At the time, one US dollar was selling at around Rs 188, but now we are paying Rs 202 for every US dollar,” he pointed out. “We are buying at discount prices. But since we are buying on long term credit, we have to pay a premium on the purchases as well.”
The rupee’s current depreciation adds as much as USD 3 billion to each year’s oil import bill, he noted. “Consequently, we are about USD 3 billion in debt each year.”
While the country was in lockdown last year, the CPC managed by paying about Rs 150 billion in tax for oil imports. With the country now largely open, this was no longer possible. More travel means more fuel is required.
Consequently, the import taxes for oil would also be high, Mr Abeysinghe pointed out. “This situation is unsustainable,” he said. “On the one hand, we have to pay the foreign suppliers and taxes to the Government. The more it continues, the bigger the crisis we face will be as the Government is also averse to increasing oil prices.”
Accordingly, discussions are underway to sign Memorandums of Understanding (MoU) with selected oil producing nations, he said. (From Sunday Times – Sri Lanka)