Rs. 8.7 b Treasury bailout for Lanka Sathosa

Cabinet approval has been given for a Treasury bailout for Lanka Sathosa after the State-run company spent Rs.17 billion on rice imports it could not sell and mired itself in debt.

In August 2014 Lanka Sathosa obtained a bank loan of Rs.14 billion to purchase 258,000 metric tons of rice, eventually spending Rs.17 billion with port charges, demurrage, warehousing and transportation charges. However, the rice was not released to the market and over 3000 metric tons were found to be unsuitable for human consumption.

“After paying Rs.5.7 billion Lanka Sathosa is in need of an additional Rs.8.7 billion to complete outstanding payments to the bank,” noted the Cabinet paper submitted by Trade and Commerce Minister Rishad Bathiudeen.

Under a joint proposal made by Bathiudeen, Finance Minister Ravi Karunanayake, Rural Economic Affairs Minister P. Harrison and International Trade Minister Malik Samarawickrama, Cabinet approved the outstanding payments would be met by Treasury funds.

The Government would also consider restructuring the embattled State enterprise, the Cabinet paper noted.

 State Enterprise Development Minister Eran Wickramaratne who was also present at the weekly Cabinet briefing lashed out at the previous Government for increasing the indebtedness of the country, in response to a statement released by former President Mahinda Rajapaksa this week.

In the statement Rajapaksa had slammed the Government for borrowing money and insisted loans during his term was used for development projects while the present administration was borrowing for consumption.

“When Rajapaksa came to power 96% of Sri Lanka’s loans were obtained on concessionary terms but by the time he left that share had dropped to 39%. The bulk of the loans were borrowed at commercial rates. They borrowed outside the consolidated fund and hid these loans by forcing State banks and public enterprises to borrow directly so their debt increased,” he said.

Wickramaratne pointed out in 2005 Ceylon Petroleum Corporation debt was Rs.15 billion but it had climbed to Rs.245 billion by 2014, similarly Ports had slipped from being profitable to being Rs.134 billion in debt because of the Hambantota harbor. The national carrier’s debt had burgeoned to Rs.135 billion in 2014 but had been shrunk to Rs.35 billion mostly due to lower oil prices.

“Our Government has not reduced any subsidies but we are attempting to give consumers the choice of how they expend these handouts,” Wickramaratne said defending changes in the uniform and fertiliser subsidies. He also stressed the Government is considering increasing direct taxation to raise public revenue.