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Indian fuel credit line interest rate under 2%

20 Jan 2022

  • Gammanpila says line is a revolving credit facility for 1 yr
  • Credit line comes at a time global prices hit 7-year high
  • Energy Min. says no price hikes planned as of now
  By Shenal Fernando  The new line of credit (LOC) of $ 500 million to Sri Lanka for the purchase of petroleum products, announced by the High Commission of India to Sri Lanka on Tuesday (18), will be a revolving credit facility for a one-year period at an interest rate of less than 2%, stated Minister of Energy Udaya Gammanpila. A revolving credit facility is a type of credit that enables one to withdraw money, use it to fund their business, repay it, and then withdraw it again when one needs it. It’s one of many flexible funding solutions in the alternative finance market today. Speaking to us yesterday (19), he stated: “The loan will involve an interest rate of LIBOR (London Interbank Offered Rate) plus 1.25%, therefore less than 2%. This credit line is a revolving facility for a one-year period, which means if we repay early, we can withdraw credit under the facility again within the one-year period.”   On Tuesday, it was announced that the offer documents relating to the $ 500 million fuel credit line have been received by Sri Lanka. However, Gammanpila claimed that due to the need to fulfil several procedural requirements, the commencement of the procurement process will take time.  Explaining the procedural requirements, he noted: “The Indian Exim Bank and the Sri Lankan External Resources Department must first sign the agreement relating to the credit facility, after which the agreement has to be vetted by the Attorney General and then it must be approved by the Cabinet of Ministers. We will start the procurement process only after we have completed the above steps. Therefore, it will take some time to obtain the fuel.” Commenting on the recent surge in global crude oil prices, he stated that the price is $ 89 per barrel, which is the highest recorded price in recent history. However, he claimed that as of now, no decision has been made regarding a further fuel price hike. The US benchmark West Texas Intermediate (WTI) closed at $ 85.4 per barrel on Tuesday and was trading at around $ 86.5 yesterday. Similarly, the international benchmark Brent Crude surged to close at $ 87.5 per barrel on Tuesday and was trading at around $ 88.3 yesterday. These numbers represent the highest figures recorded in seven years. Reuters on Tuesday reported that oil prices climbed to their highest since 2014 as investors worried about global political tensions involving major producers such as the UAE and Russia that could exacerbate the already tight supply outlook.  This surge in global crude oil prices is due to an attack on an Abu Dhabi oil facility by Iran-backed Houthi rebels from Yemen that killed three people on Monday (17) and caused a fire at the capital of the UAE’s international airport. In addition, another explosion was reported in a key crude pipeline running from Iraq to Turkey which carried more than 450,000 barrels a day last year. However, according to Turkish authorities, the explosion was caused by a power pylon falling on the pipeline during bad weather, thereby causing a fire. According to Bloomberg, global crude inventories are already near the lowest level since October 2019 with the Omicron coronavirus variant not reducing demand much and production problems in Libya and Kazakhstan. Therefore, as per Goldman Sachs, a “surprisingly large” supply deficit could see Brent prices top $ 100 a barrel by 2023. 

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