Fuelling relief

Monday, 26 March 2012 00:00 - - {{hitsCtrl.values.hits}}

AFTER much bad news, there is a sign of relief on the oil issue. Even though it was feared that Sri Lanka would lose around 90 per cent of its fuel due to US sanctions on Iran that will come into effect from June, the latest news that only 15 per cent will be reduced is heartening indeed.

It was reported over the weekend that the United States, which imposed sanctions on Iran, has asked Sri Lanka to scale down crude oil imports from Iran for the current year only by 15 per cent. Petroleum Industries Minister Susil Premajayantha has been quoted saying such a reduction meant Sri Lanka would not face a total ban immediately. It seems that the concession to reduce crude oil imports only by 15 per cent was a result of the appeal made to the US earlier.

A spokesman for the US Embassy in Colombo had noted that the US is in active discussions with the Government of Sri Lanka about the plans to reduce imports of Iranian crude oil, but had not elaborated on the concession reported to be given. Meanwhile, talks were underway with Saudi Arabia and Oman to source 15 per cent of the needed oil. While this may appear to be a small amount, even a country such as Japan, which imports only 10 per cent of its oil from Iran, is finding it challenging to find an alternative source for such a little amount. This would mean that Sri Lanka is not out of the woods yet.

Last week, Oman Oil Company (OOC) and the Ceylon Petroleum Corporation (CPC) signed a Memorandum of Understanding in energy-related activities during a visit to Colombo by an Omani delegation. The delegation also met Minister of Economic Development Basil Rajapaksa and Treasury Secretary P.B. Jayasundera. This will be followed by a top level technical delegation from Sri Lanka visiting Oman next week to look at the feasibility of importing crude oil, the quantities as well as to work out other modalities before entering into any buying agreement. Meanwhile, the CPC has also entered into another agreement with Vietnam’s Viet Petrol Co. Ltd. to buy refined petroleum from that country.

War-torn Iraq has also offered to supply fuel to Sri Lanka. Dr. Jayasundera told journalists in Colombo on Thursday, during a rare briefing, that the oil import bill had risen to US$ 4 to 5 billion from US$ 2 to 3 billion and the recent domestic fuel price increase was aimed at removing longstanding structural distortions.

However, it is still unclear as to how much the new oil bill will cost the country. It has been reported that the Government is keen to reduce imports from Iran and increase oil from alternative sources, but cost factors must be taken into consideration. Moreover, the Government stands to lose much goodwill from the people if another price hike were to be implemented so close on the heels of the February increase. The last resulted in massive protests and the death of a fisherman, showing how deeply people are affected by fuel prices.

Moreover, the Government is still struggling to curb the trade deficit and find inflows to stabilise a plummeting rupee so that essential goods such as milk powder and gas prices remain unchanged. The Ceylon Petroleum Corporation is incurring losses in excess of Rs. 60 billion, showing that the Government is struggling to absorb the cost of fuel. All this means that Sri Lanka is still far from shaking off the ghost of slow growth.