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State banks reject CPC’s debt restructuring request

28 Feb 2021

  • Lack of dollar reserves cited as reason

  • CPC’s debt to state banks at Rs. 600 b

Two main state banks have turned down a request from the loss-making debt-ridden state enterprise Ceylon Petroleum Corporation (CPC) to restructure its Rs. 600 billion debt to them, The Sunday Morning Business learnt.  CPC Deputy General Manager (Finance) Varuna Weerasooriya told us that the request made by the CPC and the Treasury to the People’s Bank and Bank of Ceylon (BOC) were denied by the said banks through letters.  Weerasooriya said that both banks rejected this proposal, citing that they do not have sufficient foreign reserves at the moment.  “We have had discussions with both the banks, however they are very reluctant; we got letters and they are not in agreement of what we are after,” he added.  Weerasooriya further emphasised that CPC’s problem would be solved if they could convert its dollar loans into rupee loans. According to Finance Ministry’s statistics, CPC’s total debt due to state-run People’s Bank and Bank of Ceylon had reached Rs. 592.7 billion by end-April 2020, in comparison to Rs. 566 billion in December 2019. The Sunday Morning Business contacted BOC for clarification on Weerasooriya’s statements. A senior official, who wished to remain anonymous, confirmed that the bank refused CPC’s proposal, due to one key reason. “Generally, they maintain the loan amount in dollar terms. Since they are getting a rupee-denominated income, sometimes they might need to convert into rupees, but that cannot be done based on the prevailing regulations.”  Subsequently, People's Bank CEO Ranjith Kodithuwakku, when contacted about the issue, refuted CPC’s claims that its request had been rejected, saying: “As far as the bank is concerned, we have not refused any practical solution.”  Kodithuwakku also noted that CPC has been a good customer and maintained a long-term relationship with the bank, as well as being a Government entity, and that no such thing had come to his notice.  Weerasooriya further said that to overcome the debt situation CPC is facing right now, several discussions are being held with the Ceylon Electricity Board (CEB) and the national carrier SriLankan Airlines, to repay the large sums both institutions owe in outstanding debt to the CPC. “SriLankan Airlines has an outstanding payment from last April 2020 (after the Easter attack) to date, and since March last year (2020) 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,” he noted.  SriLankan Airlines has been a loss-making airline for over 10 years. The airline recorded a loss of Rs. 40 billion in financial year (FY) 2017/18, the highest annual loss since Emirates’ departure from its management in 2008. SriLankan Airlines accrued losses of Rs. 240 billion during the 10-year period from 2009-2019. In addition to these losses, the total value of loans owed by SriLankan Airlines to state banks and state institutions, including CPC, was Rs. 146 billion as of October last year.  On the other hand, CEB settled a portion of its debt to CPC, utilising Rs. 48 billion from the Fund created by increasing the import duty on a litre of local fuel, when global oil prices hit negative levels during the peak of the pandemic a few months ago. In August 2020, then-Ministry of Energy Spokesman Dharma Wanninayake said: “The CEB’s outstanding debt to the CPC is Rs. 93 billion. We have paid Rs. 48 billion of it, and the balance outstanding payment at the moment is Rs. 45 billion. This is a major relief to the CPC, to utilise that money and settle their pending payments and undertake development activities.” However, Weerasooriya added, CPC is also looking for overseas funding to overcome its debt situation. 

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