Business

Tea to be exported to Iran

A scheme is to be formulated for the settlement of a sum of $ 250,925,169 outstanding from the Ceylon Petroleum Corporation (CPC) to the National Iranian Oil Company (NIOC) by means of utilising the said sum to facilitate the export of Ceylon Tea to Iran by signing a Memorandum of Understanding (MoU).

The proposed scheme is to seek the possibilities of operationalising a mechanism to settle the long-outstanding debt to the NIOC by CPC by increasing the exportation of Ceylon Tea. Since the Iranian authorities have been repeatedly highlighting the importance of the early settlement of the debt, this scheme will enable the Ministry of Finance to make the settlement in local currency through trenches of $ 5 million equivalents.

Under this scheme, the Ministry of Finance is expected to release Sri Lanka rupees of an equivalent amount of $ 5 million per month (at the exchange rate declared by the Central Bank of Sri Lanka [CBSL]) on the first Monday of each month to the Sri Lanka Tea Board in settlement of the outstanding debt arising from oil purchases by CPC, until the entire $ 250,925,169 is settled. Consequently, the Tea Board will be settling payments to Sri Lanka tea exporters upon confirmation of tea consignments shipped to Iran by the tea exporters. The Tea Board will establish a dedicated account to receive funds from the Ministry of Finance and disburse the same to tea exporters.

This MoU was signed yesterday (21) by Minister of Plantation Dr. Ramesh Pathirana and Iranisan Deputy Minister of Industry, Mine, and Trade Alireza Paymanpak. The MoU is a form of mutual commitment in complementing each other’s duties and function in the formulation of a scheme for the settlement of Sri Lanka’s oil outstanding to the Islamic Republic of Iran through the exportation of Ceylon Tea.

Iran has been among the top 10 importing countries of Ceylon Tea for the past several decades. Ceylon Tea, which had a market share of around 47% in 2016, dropped to around 25% in 2020 due to the economic sanctions resulting in banking restrictions, payment problems, and depreciation of the Iranian riyal. From a peak of 38.42 million kg in 2013, tea exports from Sri Lanka to Iran dropped to 14.73 million kg in 2020.

Due to US sanctions imposed on Iran in November 2012, and with the absence of an accepted payment mechanism through the banking system, Sri Lankan tea exporters found it difficult to receive the export proceeds from Iranian buyers. As at present, the payments are usually channelled through intermediary countries and on many occasions, export proceeds are received in instalments, incurring inordinate delays. The additional US sanctions on Iran are creating further impediments for Sri Lanka to export tea to that destination.

The mechanism will be scrutinised through a recognised audit firm and the Sri Lanka Tea Board will settle the payments to tea exporters from the funds released and deposited by the Ministry of Finance, based on the recommendations of the selected audit firm.

Sri Lanka will be in a comfortable position to serve the Iranian tea market until the entire $ 250,925,169 is utilised and the debt payment to Iran is settled while reimbursing Sri Lankan tea exporters in Sri Lankan rupees. This scheme will not violate any United Nations or US sanctions since tea has been categorised as a food item under humanitarian grounds, while none of the blacklisted Iranian banks will be involved in the equation.

State Ministers Kanaka Herath and Tharaka Balasuriya, Iranian Ambassador to Sri Lanka Haseem Azzazade, Ministry of Plantations Secretary Ravindra Hewawasam, Sri Lanka Tea Board Chairman Jayampathi Molligoda, and secretaries to state ministries attended the signing of the MoU.