A lender from the US is expected to lend $ 1 billion to Sri Lanka’s debt-ridden, state-owned oil company, the Ceylon Petroleum Corporation (CPC), to help repay the colossal sums of debt the corporation owes to state banks, The Sunday Morning Business exclusively learns.
The loan is said to be received by the end this year at an interest rate of 3% per annum.
The decision to seek for an international lender who would lend money at a lower interest rate to partially rescue CPC from its debt to state banks was prompted by the fact that the entity has to pay higher interests to Bank of Ceylon (BOC) and People’s Bank for the money it owes to these banks.
Speaking to us, CPC Deputy General Manager of Finance Varuna Nilanga Weerasooriya stated that after the Cabinet of Ministers evaluated all loan offers it had received, it granted approval to proceed to obtain $ 1 billion from the US at an interest rate of 3%.
The Sri Lankan authorities initially requested credit from the Bank of Japan and the State Bank of China at a comparatively lower interest rate. However, speaking to us in June, Minister of Energy Udaya Gammanpila stated that after evaluating Sri Lanka’s loan request, both said international banks refused to grant the loan of $ 1 billion at an interest rate lower than the existing rate of 5.5%.
“We are in debt to BOC and People’s Bank. Therefore, we asked the Chinese and Japanese Ambassadors if they could provide loans to replace the existing loans with a lower interest rate. However, after the calculation and evaluation, they said they can’t lower the interest rate,” Gammanpila said at the time.
Commenting further, he said that the Cabinet-appointed committee, which comprises Ministry of Energy Secretary K.D.R. Olga, Deputy Secretary to the Treasury Saman Fernando, and CPC Managing Director Buddhika Ruwan Madihahewa, would study the existing proposal in depth and come to a decision on whether to acquire a $ 1 billion loan at the interest rate offered by these two lenders.
However, later on it was reported that CPC had received loan offers from several other countries including Australia, Singapore, and China.
Speaking to us, CPC Chairman Sumith Wijesinghe stated that the officials are currently negotiating and in the middle of working on issuing the Letter of Intent (LOI). Subsequently, when inquired by when the $ 1 billion loan will be received, he said it will hopefully be received within this year.
All attempts to reach Minister of Energy Gammanpila for further insights proved futile.
Meanwhile, Petroleum Corporation National Employees’ Union Chairman Samika Asithanja last Monday (13) opposed this decision and stated that as a trade union, they do not feel it is ideal for the Government to allegedly forgo the Minister of Finance and the Treasury to obtain such a loan.
“So far, we have not been notified of obtaining loans or contracts from foreign nations. We suppose they are attempting to amend the CPC Act in a bid to meet a requirement in this deal,” he alleged.
Weerasooriya in February emphasised that CPC’s debt problem would be solved if it could convert its dollar loans into rupee loans. According to Finance Ministry statistics, CPC’s total debt due to state-run People’s Bank and BOC had reached Rs. 592.7 billion by end-April 2020, in comparison to Rs. 566 billion in December 2019.
However, to overcome the debt situation CPC is facing right now, several discussions are being held with the Ceylon Electricity Board (CEB) and SriLankan Airlines in order to repay the large sums both said institutions owe in outstanding debt to the CPC.
Commenting with regard to this, Weerasooriya said: “SriLankan Airlines has had an outstanding payment from last April 2020 (after the Easter Sunday attacks) to date, and since March last year, the CEB has only been paying marginal figures; they are not paying at all. There are individual power plants that are also waiting for CEB to pay.”