Government steps into CPC bailout
The Government is aiming to rescue the debt-saddled Ceylon Petroleum Corporation (CPC) from the threat of bankruptcy with around Rs. 600 billion in debt and currently running at a loss, official data confirmed.
According to Finance Ministry statistics, total CPC debt due to state-run People’s Bank and Bank of Ceylon had reached Rs. 592.7 billion by end April 2020 from Rs. 566 billion in December 2019. These were the latest figures available while the period after April 2020 would show a higher level of losses.
Previous governments used to settle CPC losses through dollar borrowings but in 2018 it borrowed dollars despite having rupee deposits from a price formula which it could have used to settle debt, an official source revealed.
A cabinet subcommittee comprising Ministers of Power, Energy, and Fisheries headed by Prime Minister Mahinda Rajapaksa has been appointed to find ways and means to bailout the CPC. However the corporation has saved $300 million in foreign exchange for the year 2020, CPC Chairman Sumith Wijesinghe told the Parliament Committee on Public Enterprisers (COPE) recently.
He stated that the government was able to take advantage of this due to the fall in the price of a barrel of crude oil last year and several other reasons.
The operational profit of Rs. 1.49 billion recorded by the CPC in the first four months of 2020 has converted to an overall loss of Rs. 45.14 billion due to the foreign exchange loss of Rs. 43.89 billion, Finance Ministry data revealed.
Further, the CPC was in difficulty in reaping optimal benefits over the historically lower global oil price due to the reduction of demand of the petroleum products around by 18 per cent to 1,790 million litres in the first four months of 2020, compared to the demand of 2,117 million litres in the same period of 2019.
The government introduced the Fuel Price Stabilization Fund (FPSF) in March 2020 to maintain stable fuel prices in the country.
The CPC’s cash flow constraints further deteriorated as total receivables from other state agencies grew to Rs. 119.77 billion at the end of April 2020.
The accumulated loss and the working capital requirements of the CPC have been mainly financed through loans obtained from two state banks.
This has resulted in the total banking sector exposure to CPC reaching nearly Rs. 600 billion creating more pressure on debt servicing on its balance sheet, Treasury records revealed.