CPC debt rollover plan fails
- Gammanpila confirms $ 2.5 b refinancing attempt didn’t work
- Says lenders required guarantee from AAA-rated bank
The debt-ridden Ceylon Petroleum Corporation (CPC) has failed to secure a loan of $ 2.5 billion from US-based PSL America Inc. to refinance the colossal sum of money the state institution owes to two state banks.
Addressing the allegations made by Opposition MPs regarding the $ 2.5 billion loan sought by the CPC, Minister of Energy Udaya Gammanpila stated in Parliament on Monday (29 November) that this loan has not been obtained as of yet and added it was merely a proposal and that no commission had been paid as alleged.
“At the time I specifically said that such a large sum of money wouldn’t be received at such a low interest rate and as I predicted we didn’t receive yet. However, the opposition from time-to-time keeps alleging that a loan has been taken with a commission as if they had just woken up from a dream.”
Gammanpila explained that the CPC owed $ 3.6 billion to two state banks (Bank of Ceylon and People’s Bank) at an interest rate of 5.5%. “This substantial loan amount has had an adverse effect on the foreign exchange liquidity and the monetary stability of the two state banks,” he claimed.
Meanwhile, according to Gammannpila, over the past eight years, the CPC has received 23 unsolicited loan proposals at lower interest rates.
He noted: “On one side, we have obtained loans at high interest rates and are in a dollar crisis, while at the same time certain people have submitted proposals offering US dollars. Due to the fact that the Government will be criticised for not taking action despite having the option of resolving the country’s dollar crisis and obtaining a loan at a lower cost, I requested the Treasury to publish a notice in a newspaper calling for proposals.
“However, the Treasury observations stated that if no response is received to the advertisement, it would hinder its own efforts at raising dollar loans. Therefore, instead of publishing a notice, it recommended appointing a committee nominated by the Finance Ministry to study the proposals received to select a good proposal.”
However, when the committee studied the proposals, it was identified that a majority of them required either a guarantee from an AAA-rated bank or a guarantee from one of 25 largest global banks.
“Only one company was prepared to take a sovereign guarantee from the Sri Lankan Government. That was New Jersey-based PSL America Inc.,” stated Gammanpila.
He further stated that the committee had recommended in its committee report that the loan be obtained from the aforementioned company and admitted that this unsolicited proposal did require an upfront fee of 7%, as alleged by Opposition MPs.
“When this committee report was submitted, I questioned them regarding this 7% upfront fee and they claimed that they had asked the same question from the persons who had submitted the proposal. They had stated that the CPC is a company in a serious financial crisis and Sri Lanka possesses a very low credit rating. Therefore, the organisation will be insuring the credit risk and thus this 7% fee will be used to fund the insurance costs as well as legal and other administrative costs,” Gammanpila claimed.
Explaining further, he claimed: “Due to this 7% upfront fee, we will be receiving 93% out of 100% at an effective interest of 3.23%. Therefore, this loan is attractive from the CPC’s point of view, as we are currently paying state banks an interest rate of 5.5% on the loan and the cost of this new loan is only 3.23%.”
Therefore, this proposal was presented to the Cabinet of Ministers, but Gammanpila claimed that he had stated to the Cabinet, to Samagi Jana Balawegaya (SJB) MP Dr. Harsha de Silva, as well as in a media conference on 11 October that this proposal in question was too good to be true.
He further claimed that he had, in such instances, expressed his opinion that obtaining this loan was highly unlikely due to the fact that this $ 2.5 billion loan was offered at an interest rate of 3.23%, despite the risk existing in Sri Lanka.
“However, if I hadn’t presented this proposal to the Cabinet, I would have been accused of failing to utilise an opportunity to obtain a loan at a low interest rate,” he noted.
He further denied the allegation that the 7% upfront fee was a commission and claimed that it was required to insure the considerable credit risk involved. He further pointed to the fact that currently, an 8% interest is paid on Treasury bills and therefore, if Sri Lanka can obtain a loan at a 3.23% interest rate upon paying a 7% insurance charge, it is still favourable for the country.