Fuel crisis: Financial crisis ignites at CPC

• CPC has reduced its debt to banks by $ 355 m: Energy Minister
• CPC has repaid $ 611 m of debt-owed to State banks in rupees
• CEB debt not settled in full, CPC will continue to supply fuel: CPC
• LC for furnace oil shipment for March to be secured tomorrow
• Short-term measures won’t work: SJB MP Eran

By Asiri Fernando

The energy crisis Sri Lanka is facing risks further escalation as the Ceylon Petroleum Corporation (CPC) continues to struggle with a massive debt burden while the ascending global crude oil prices, driven by the Russia-Ukraine conflict, threaten to further complicate matters in the coming days.

The challenges facing the importation of fuel and crude oil also affect Sri Lanka’s thermal power generation capacity, with four- to five-hour power cuts predicted for most areas next week.

Addressing Parliament last week, Energy Minister Udaya Gammanpila acknowledged that the forex shortage facing Sri Lanka was the core reason for disruptions to sustained fuel supply at the pump. 

However, he stated that during his tenure as the Minister of Energy, the CPC had reduced its debt to State banks by $ 355 million, thereby reducing the State-owned fuel supplier’s debt to $ 2,745 million from $ 3,100 million in 2019.

“When I took over the Ministry, the debt that CPC owed the two State banks was a total of $ 3,100 million. Noting the serious threat that such a debt posed to not just the CPC, but also to the State banks, we decided to embark on debt restructuring. For the last two years, the debt that the CPC owes to the State banks has only increased by $ 256 million. We have managed to pay, in rupees, an amount equal to $ 611 million since 2019 to the State banks. They have not been able to convert this amount to dollars due to the crisis. As of now, we have reduced the debt to $ 2,745 million which is a $ 355 million decrease,” Gammanpila stated.

Gammanpila argued that financial viability of the CPC had been in question since 2019, with him attempting to mitigate the impact. Last year, Gammanpila sought to get Cabinet permission for a cost-reflective price for fuel, but failed to gain its  approval and had to settle for a fuel price hike later in the year.

The State utility provider, the Ceylon Electricity Board (CEB), which owes the CPC billions, was instructed by the President last month to settle its dues to the petroleum suppliers. 

However, according to the CPC, the CEB is yet to make a substantial payment to it. The Sunday Morning reported the previous week that the Public Utilities Commission of Sri Lanka (PUSCL) had facilitated a short-term loan from LECO to CEB to pay for fuel needed for power generation.

When asked about the debt repayment by the CEB to CPC, CPC Chairman Sumith Wijesinghe stated: “They have only made small payments, nowhere near the full amount. However, we will continue to supply fuel for them to generate electricity.”

The CPC plans to open a Letter of Credit (LC) tomorrow (28) to facilitate a 30,000 MT shipment of fuel oil which is expected to arrive at the Colombo Port next Thursday (3 March), CPC Chairman Wijesinghe told The Sunday Morning. 

The supply of crude oil to the Sapugaskanda refinery has also been reduced to one shipment per month instead of two due to the forex crisis and the rise in the price of crude oil, thereby forcing the refinery to operate at a low throughput level and produce less diesel, petrol, and kerosene locally.

According to Wijesinghe, two more LCs have been opened and are to be finalised during the weekend for two fuel shipments. However, he would not comment on which fuel was to be imported through them.  

Earlier last week, the Energy Minister had stated that the consignment would be unloaded “only if an LC was opened on time”. While the delays in opening LCs is dependent on the dollar shortage, the suppliers seeking payment prior to unloading is a clear indication of the lack of confidence local banks and suppliers have in the financial stability of the CPC.

Responding to a query in Parliament, Minister Gammanpila stated that fuel and oil imports accounted for nearly 20% of the Government’s earnings and that the worsening forex crisis has played a direct role in importing fuel.  

The Energy Minister stated that Sri Lanka would require $ 1.28 billion to import fuel for the next three months, adding that the Ministry planned to utilise the $ 500 million revolving loan from India to finance part of the required funds. According to Gammanpila, the Government is exploring other funding options to source the remaining $ 700 million needed.

However, the amount the Energy Minister states is based on today’s rates in the international oil markets. With Russia steadfast in its military campaign in Ukraine, the resulting economic and financial sanctions which will follow may well push the price of a barrel of Brent crude oil to $ 115 or beyond. How the Government plans to overcome such a possibility remains unclear.   

When reached about the soaring price of crude oil in the international market and its possible impact on the local energy sector, Opposition Parliamentarian SJB MP Eran Wickramaratne said the Government needed to seriously address the ongoing economic, debt, and forex crisis to avoid further calamity.

“The Government is groping in the dark. Short-term measures will not work. Its philosophy needs to change. The Indian line of credit will help but it will only delay the crisis. Robust solutions at macroeconomic level are needed; we need to build stability and address the exchange rate crisis,” he opined.