Home Business Gammanpila’s Ministry to obtain USD 1Bn loan from private lending agencies

Gammanpila’s Ministry to obtain USD 1Bn loan from private lending agencies


The Government has decided to obtain a loan of USD 1 billion from international private lending agencies to set off interest payments for loans obtained from two state banks to purchase fuel.

Secretary to the Ministry of Energy K.D.R. Olga had told the Sunday Times that the funds would be used to pay part of the interest in respect of USD 2.081 billion (USD 2081 million) owed by the Ceylon Petroleum Corporation (CPC) to the People’s Bank and the Bank of Ceylon (BOC).

The ministry had already submitted nine unsolicited proposals from lending agencies to provide the CPC with a loan of USD 1 billion, the Sunday Times learns.

A committee has been appointed to evaluate these proposals and it comprises, apart from Olga, the Treasury’s Deputy Secretary Saman Fernando and the CPC’s Managing Director Buddhika Ruwan Madihahewa.  The evaluation process is to begin in the coming week.

The move comes in the wake of a drastic fuel price revision which has had a spiraling effect on the cost of living.

The Energy Ministry had initially held talks with the State Bank of Japan and the State Bank of China to obtain this USD 1 billion loan at an interest rate lower than 3 per cent but the talks were unsuccessful largely because of the economic crisis Sri Lanka was facing.

Therefore, the Government has now decided to consider the unsolicited proposals it has received.

The Minister had submitted the Cabinet Paper proposing to call for expressions of interest to obtain a loan of USD 1 billion at a low rate of interest so as to overcome this severe financial crisis the CPC is facing. The cabinet paper had been approved.

“However, because of the financial crisis the country is facing now and since an adverse impact can be created by calling for expressions of interest, Cabinet approval has been granted instead to consider the unsolicited proposals received,” Olga said.

“The Peoples Bank and the BOC are charging 5.5% interest on the loans we have obtained to purchase fuel. That is a huge burden. Therefore, we thought that if we are able to obtain a dollar loan for a rate of interest less than 5.5%, we could set off the bank interest against it,” she said.

In any event, any lending agency which will grant the loan will have to be provided with sovereign guarantee from the Central Bank of Sri Lanka.

“Up to USD one billion, sovereign guarantees already issued to the BOC and the Peoples Bank will be used for this purpose, as debts of the two banks are to be settled by the USD loan,” she noted.

However, a CPC official, who did not want to be named, said there were plans to mortgage CPC lands.

“While USD 2081 million has to be paid to the two state banks alone, the sovereign guarantees mentioned by the Secretary are not valid anymore. Therefore, to obtain this loan, lands belonging to the CPC will have to be mortgaged,” he said.

Olga said they hoped to obtain the loan with a minimum repayment period of 10 years and a grace period of two years for less than 3% interest.

If the ministry’s requirements were not met, she said the proposals would be rejected.

The CPC’s total debt as of now amounts to Rs. 635 billion (USD 3355 million). Of this, USD 1075 million has to be paid to the People’s Bank while the amount owed to the BOC is USD 1006 million amounting to a total of USD 2081 million. In addition, through Letters of Credit (LCs) of the People’s Bank, oil suppliers have to be paid USD 597 million and through LCs of the BOC, USD 677 million is to be paid to oil suppliers.

The net loss reported by the CPC as at December 31, 2020 was Rs 275 billion.

Two main government institutions and Individual Power Plants (IPPs) owe the CPC Rs. 151 billion. Similarly, the Ceylon Electricity Board has to pay the CPC Rs. 82 billion. In 2018 Sri Lankan Airlines had to pay Rs. 57 billion and IPPs owed the CPC Rs. 12 billion.

Olga said that Rs. 151 billion owed to the CPC had accumulated since a few years ago. De to the depreciation of the rupee, she pointed out that the CPC was facing a massive exchange loss for fuel imports. For example, the exchange loss for the CPC due to these institutions not paying their arrears during the proper period of time, is about Rs. 82 billion, only for 2018.


Please enter your comment!
Please enter your name here