Sri Lanka struggles to import fuel as banks run low on dollars

by Reuters
Tuesday, 11 January 2022 11:16 GMT

By Uditha Jayasinghe

COLOMBO, Jan 11 (Reuters) - Sri Lanka's president ordered the central bank on Tuesday to release $83 million for fuel payments as banks struggle with severe dollar shortages, the energy minister said.

Hit hard by the coronavirus pandemic that has shuttered its critical tourism industry, heavily indebted Sri Lanka is facing a foreign exchange crisis that has already seen it close its main oil and gas refinery.

Energy Minister Udaya Gammanpila told Reuters that three fuel shipments from Singapore carrying 120,000 metric tonnes of diesel and petrol were unable to offload their cargo due to state banks being unable to issue Letters of Credit due to a severe dollar shortage.

"It is a very challenging situation. We need about $350 million-$400 million each month for fuel imports. Now President Gotabaya Rajapaksa has ordered the central bank to release the necessary funds to pay for the fuel shipments that have arrived," Gammanpila told Reuters.

However, he said Sri Lanka may run into similar payment issues for the next round of shipments needed to ensure sufficient stocks for February. Sri Lanka requires about 5,500 metric tonnes of diesel and 3,500 metric tonnes of petrol daily.

A central bank guarantee will also be needed to offload 4,800 metric tonnes of coal Sri Lanka is importing from Russia to run its Chinese-built coal power plant, Power Minister Gamini Lokuge said.

The State-run Ceylon Electricity Board (CEB) on Monday released a countrywide schedule for possible load shedding of up to two hours, partly due to limited availability of furnace oil stocks to run thermal power plants. Lokuge ruled out immediate power cuts.

"We accept there is a serious dollar shortage, but we expect it to be temporary. The government is working to resolve this issue and we are confident reserves will be stabilized in the coming weeks," Ramesh Pathirana, a cabinet spokesman told reporters.

Pathirana said Sri Lanka was "keeping the door open," to negotiate a programme with the International Monetary Fund (IMF) and could consider debt restructuring options with bilateral lenders including China, Japan, the World Bank and Asian Development Bank.

However, the biggest chunk of Sri Lanka's debt repayments for 2022, over $1.54 billion, is held by international investors, and there has been no official indication the government has made overtures to bond holders.

The country has been negotiating multiple credit lines and a swap worth about $2.9 billion from India and Qatar for several months. A $1.5 billion yuan swap from China helped the island boost its reserves to $3.1 billion at the end of December.

Sri Lanka's central bank has repeatedly assured all debt repayments will be met and said funds for a $500 million international sovereign bond maturing on Jan. 18 have already been allocated. (Reporting by Uditha Jayasinghe Editing by Alasdair Pal and Bernadette Baum)

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