News
CPC set to start settling debt of Rs. 80.4bn to National Iranian Oil Company
The Ceylon Petroleum Corporation (CPC) will this month start settling a legacy debt of US$ 251mn (Rs. 80.4bn) owed to the National Iranian Oil Company (NIOC) at the rate of US$ 5mn (Rs. 1.6bn) a month, Cabinet has approved.
The CPC will finance these payments through its operating cash flows, i.e., monies generated by its main business activities. By December 15, 2023, the CPC will also settle an outstanding debt of US$ 697mn (Rs. 223.2bn) owed to the General Treasury (in terms of the Indian credit line) by borrowing from the State-owned Bank of Ceylon.
The corporation will repay these loans using cash inflows from the Ceylon Electricity Board (CEB) and SriLankan Airlines, states the relevant Cabinet paper submitted by the Ministry of Finance, Economic Stabilisation and National Policies.
When the Indian credit line was arranged in April 2022, there was no cost-reflective pricing strategy for CPC products, the memorandum points out. This meant that the corporation could not recover its cost of sales.
The Cabinet paper was submitted in keeping with one of the International Monetary Fund’s (IMF) structural benchmarks which required Cabinet approval to be obtained by end-June 2023 for a strategy to comprehensively restructure the balance sheet of the CPC, CEB, Road Development Authority (RDA) and SriLankan Airlines.
“It is also observed that the key SOEs have considerable exposure to the two state banks, creating a risk to the entire banking sector,” the memorandum states.
While the CPC’s operational losses were “reduced substantially” last year through the automatic monthly fuel pricing formula (effective May 2022), the exchange rate depreciation eroded its bottom line. The corporation ended the year with its highest ever net loss of Rs. 615bn, the Cabinet paper reveals. (Net loss is when total expenses–including taxes, fees, interest, and depreciation–exceed the income or revenue produced for a given period of time). But CPC’s balance sheet “improved substantially” when its legacy debt stock of US$ 2.434bn (Rs. 779bn) was transferred to the Government of Sri Lanka’s balance sheet with Cabinet approval. At the end of April 2023, therefore, its negative net assets had dropped to Rs. 42bn and its exposure to the BoC also reduced to Rs. 26bn.
As part of the restructuring process, the Ministry of Power and Energy will continue to add private sector firms into the downstream petroleum sector to enhance competitiveness. The objective, according to the Cabinet paper, is to reduce CPC’s market presence by a significant 45 percent.
It is anticipated that, even after accounting for this potential 45 percent loss in revenue, the corporation will be able to meet its obligations “as most of the other liabilities would have been settled through the proposed strategy”.
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