ECONOMYNEXT – Foreign banks are refusing to confirm letters of credit issued by Sri Lanka state banks, and oil suppliers are also rejecting them, Power and Energy Minister Kanchana Wijesekera said as the country reels from the worst currency crisis in the history of the central bank.

A supplier who was given an order for petrol had rejected a letter of credit issued by a state bank.

At first efforts were made with Bank of Ceylon to issue a Letter of Credit and later People’s Bank agreed to issue a letter of credit.

Minister Wijesekera said efforts were made to get Standard Chartered Bank and some Indian banks to confirm the Letter of Credit but they had declined.

The supplier then tried to get the trade credit approved by a financial institution affiliated to them, but a few days later the agency had also refused.

The ship had then been diverted to an Indian port, he said and CPC could not confirm when the next petrol ship would come.

State run Ceylon Petroleum Corporation owes US$326mn to traditional suppliers through the Bank of Ceylon and would owe US$371mn to suppliers by June and July when the terms expire through letters of credit opened by People’s Bank, he said.

The LCs related to fuel imports made in November, December, January, February, March and April 2022.

Some suppliers like Petro China used to give Sri Lanka 180 days of credit through LCs, Minister Wijesekera said.

Sri Lanka is operating probably the most deadly monetary regime cooked up mainly by US neo-Mercantilists and peddled to third world nations called flexible inflation targeting where a unstable reserve collecting peg (flexible exchange rate) is bombarded with liquidity injections via open market operation (flexible inflation targeting) until it collapses.

Traditional suppliers to Ceylon Petroleum Corporation could no longer bear the risk of supplying Sri Lanka due to unsettled arrears, he said.

However efforts were underway to develop a payment plan to settle them, he said.

Sri Lanka was not getting responses for recent oil tenders he said. Except for a solitary tender for Jet-A1 which was too expensive at around 70 million US dollars when the normal price was around 50 million dollars, there were no responses for regular tenders, he said.

With old suppliers in arrears the CPC had evaluated proposals from a number of new suppliers who had made proposals and given letters of awards.

Several of the new awardees had also moved out, he said.

“Two suppliers told me that their banks when they went to their banks, their suppliers refused to supply after a further downgrade a few days ago they cannot agree to LCs with these banks or tripartite agreements,” Wijesekera said.

The new supplier had asked for pre-payment but there was no provision in the agreement to do that.

However the CPC was now looking at paying upfront and getting oil, he said. (Colombo/June27/2022)