ECONOMYNEXT – Sri Lanka’s cabinet of ministers has cleared a proposal to allow companies in oil producing countries to distribute fuel as the country is in the grip of a monetary meltdown triggered by mis-targeting of interest rates by a intermediate regime central bank.

At the moment 90 percent of fuel distribution is done by state-run Ceylon Petroleum Corporation and about 10 percent by Lanka IOC.

“Due to the currency crisis faced by Sri Lanka it is a big challenge to supply oil without interruption,” a statement issued after the weekly cabinet meeting said.

“In that situation it is seen as advisable to allow companies in oil producing countries to import and distribute oil using their own resources, without putting pressure on foreign currency problem.”

“The cabinet has approved a proposal by the Minister of Power and Energy to enter into long term agreements with companies selected through an orderly process.”

Energy Minister Kanchana Wijesekera said on June 25 that players may be given 200 to 300 filling stations out of the 1,190 fuel stations operated by state-run Ceylon Petroleum Corporation.

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However they have to import and distribute oil on credit for 6 to 12 months, he said.

Sri Lanka has a habit of importing oil on credit and selling every time the soft-pegged central bank prints money to mis-target interest rates and triggers currency trouble. The CPC is already heavily indebted due to the soft-pegging and borrowings.

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On June 27, a group of CPC workers held Energy Ministry Secretary Mapa Pathirana hostage inside his vehicle and blocked his vehicle from leaving his office in a protest against the privatization plan.

Sri Lanka has had foreign exchange trouble ever since a soft-pegged central bank was set up in 1950 but the current meltdown is the worst in its history.

The rupee has fallen from 200 to 360 to the US dollar in a botched attempt to float the currency since March 2022.

The currency is still under pressure due to money printing. (Colombo/June27/2022)