Tea barter with Iran on hold

By Madhusha Thavapalakumar

The implementation of Sri Lanka’s barter deal with Iran to revive Ceylon tea exports to Iran and settle the oil credit of Ceylon Petroleum Corporation (CPC) to Iran is on a temporary hold, sources told The Sunday Morning Business.

Sri Lanka Tea Board (SLTB) Director – Tea Promotion Hasitha De Alwis told The Sunday Morning Business that the temporary hold has been due to a number of reasons including increased sanctions over Iran by the US, lack of an operationalised plan, and the presidential election in Sri Lanka held in November.

The US sanctions at the moment over Iran are comparatively higher than the sanctions that were present in July this year, during when the plan to sign a barter deal with Iran was initiated by the Sri Lankan Government.

According to international news reports, fresh sanctions over Iran by the US were imposed on Wednesday (11) as the US Treasury imposed new sanctions on Iran’s biggest airline and its shipping industry, accusing them of transporting lethal aid from Iran to Yemen.

“In such a condition when US sanctions are more rigorous over Iran, we have to find ways to implement this barter system. We have to talk to US authorities and get certain clarifications in first,” De Alwis noted.

In addition, Sri Lanka is in need of a proper operationalised plan to implement the barter deal, which still has not been completed, according to De Alwis.

“A proper plan has to be introduced. But for this, we should have captains to lead us. At the moment, neither the SLTB nor the CPC have chairmen. We have to wait until a chairman is appointed and once it’s done, we have to brief him/her of this plan. It’s going to take some time,” Alwis added.

Following the presidential election on 16 November, SLTB Chairman Lucille Wijewardena and CPC Chairman G.S. Withanage tendered their resignations and as of Friday (13), these two institutions are yet to have new chairmen appointed.

Despite these issues, De Alwis is optimistic of the implementation of the barter deal with Iran as there is no indication of abandonment.

The barter deal was initially announced in July this year by then Minister of Plantation Industries Navin Dissanayake, with a view to settle the CPC’s $ 240 million in outstanding payments to be made to Iran for oil imports dating over six years as well as to ease the burdensome financial transactions for the tea exported to Iranian markets.

The Tea Exporters Association (TEA), which proposed the barter system, had been inspired by India’s existing barter deal for tea exports with Iran. Iran is currently struggling under crippling economic sanctions imposed by the US, with other nations also being unwilling to transact with it, fearing the wrath of the world’s superpower.

The tightening of economic sanctions against Iran by the United Nations (UN) and the US has had a tremendous negative effect on Colombo tea auction prices. Since tea is a food item which has received clearance for trading under humanitarian grounds by the UN and the US, the problem for Sri Lanka was the non-availability of a banking system in Iran which is currently blacklisted.

The benefit for the CPC from the deal is that it can settle the outstanding dollar payment in rupees and break down the payment into 48 instalments.

Meanwhile, despite a comparatively lower quantity of tea exports under the deal than usual, the TEA and SLTB would be able to export tea to Iran for the next four years without being concerned over delayed payments from Iran for their exports.

Accordingly, at the end of four years, the CPC would have settled Rs. 42.2 billion to the SLTB while the SLTB would have exported tea worth Rs. 42.2 billion to Iran.

The barter deal equally benefits isolated Iran. According to Iranian news reports, the country’s Ministry of Economy and Finance is drafting regulations to set up companies to carry out barter trade with foreign partners as a way of evading US sanctions.

At the moment, Iran has barter deals with a number of countries including China, India, and Russia where Iran mostly uses its oil for trade.

As of July, Ministry sources told us that the Sri Lankan side of the barter deal was being prepared, and for the implementation of the deal, Iran also had to finalise a mechanism from their side, connecting the tea importers and petroleum authorities of the country.

However, once the mechanisms on both ends were finalised, the Sri Lankan Government was to have a discussion with the Iranian High Commissioner, after which the proposed barter deal was to reach the Cabinet of Ministers for their approval, and the deal was to be implemented by the end of August.

According to former SLTB Chairman Wijewardena, a separate bank account would be created for payments from the CPC to the SLTB.

In 2017, Sri Lanka exported 27,418 MT of tea to Iran, but it dropped to 23,914 MT in 2018 due to US sanctions on Iran. The drop has also had a considerable impact on the overall tea exports during the year. In 2018, revenue from tea exports to Iran amounted to $ 120 million. It would be halved to $ 60 million approximately per year under the barter deal.