Oman oil credit line end this month

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The Government of Sri Lanka is expected to secure the $ 3.6 billion credit line from the Government of Oman to finance Sri Lanka’s oil procurements within the month of November.

Speaking to The Morning Business, Ministry of Energy Secretary K.D.R. Olga stated that currently, the relevant documents are being drafted and all related matters are expected to be finalised by the end of November.

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Furthermore, she noted: “The terms of the agreement would provide the Government a five-year grace period and a repayment period spanning 20 years.”

Oman oil Logos

This $ 3.6 billion credit line, which is expected to fund the purchase of fuel for a period of 12 months, was granted cabinet approval in the beginning of October.

Commenting on the matter, Olga, on a previous occasion, stated that despite the possibility of credit facilities being extended, fuel will have to be purchased at normal prices and that therefore, since the loss to the Ceylon Petroleum Corporation (CPC) remains the same, an increase in fuel prices will inevitably be required.

A highly placed government source had previously disclosed to us that the discussions with the UAE and India on securing a credit line for oil, would not be a necessity once the Oman deal was finalised.

However, the source noted that negotiations with India on the $ 500 million credit line would proceed, as the facility would be kept as a standby support mechanism in the event there were any increases in global oil prices in the future.

“These steps would ensure that the country would receive a steady supply of fuel,” the source observed.

Subsequently, a senior Treasury official disclosed to us on condition of anonymity, that the Export-Import (EXIM) Bank of India has handed over the relevant documentation relating to the credit line sought by Sri Lanka to the respective Indian parties for negotiation with the Government of Sri Lanka. However, Sri Lanka is yet to receive such documents from the Indian parties.   

Despite repeated attempts by The Morning Business to contact Minister of Energy Udaya Gammanpila, all such attempts proved futile.

However, the Minister of Energy had, on a previous occasion, told us that if Sri Lanka can secure this loan, $ 300 million can be infused into our forex market on a monthly basis for a year. 

According to him, this will ease the present crisis and the people will ultimately benefit.  

“We can control inflation, which is driven by import costs and the appreciation of the dollar, and we will be able to ensure uninterrupted fuel supply. Despite many obstacles, Sri Lanka has been able to maintain uninterrupted fuel supply. There are several (four) options in the pipeline. The Omani one is the most attractive credit facility. If these fail, then we can opt for the alternatives,” Gammanpila stated. 

Moreover, commenting on the accumulated debt of the Ceylon Petroleum Corporation (CPC), he held that the CPC owes $ 3.6 billion to two state banks (Bank of Ceylon and People’s Bank). 

The proposal previously made by the Omani Government to grant them an offshore block in the Mannar Basin to explore oil deposits, in lieu of the interest payments of the credit line, was rejected by the Sri Lankan Government.

While fuel usage dipped during the lockdown periods, recovery was fast once the lockdowns were lifted. Further, total electricity generation appears to have reached pre-Covid-19 levels with industrial electricity consumption on par with pre-Covid-19 levels. Consequently, it appears that this increased demand for energy will ultimately require higher levels of fuel imports.

A credit line is essential if Sri Lanka is to obtain its required oil imports due to the current foreign exchange liquidity issue in the country. The official gross reserves of the country fell to $ 2 billion by the end of September from $ 3.5 billion in August, which is sufficient to cover only around 1.3 months of imports.

Non-debt-generating inflows from tourism and foreign direct investment (FDI) have been repressed since 2019, due to the Easter Sunday attacks and the Covid-19 outbreak. The Sri Lankan Government has been forced to seek funding through swaps and credit lines. 

This situation is exacerbated by the country’s high public debt, which reached 108% of the gross domestic product (GDP) in 2020, of which around 40% is external/foreign debt. Moreover, the Government will have Rs. 4-5 billion in external debt obligations annually until 2025.

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