Nothing to fuel the way forward | Daily FT

Towards the beginning of last week, promises about fuel supply went up in flames as tankers that were allegedly making its course to Sri Lankan waters have been stalled indefinitely. While fuel was ‘on the way’ for the past few weeks now, this was proven to be a pipe dream as nationwide fuel sales have been suspended. 

With the exception of essential services that include ports, airports, health, food distribution and agriculture, for which State-owned Ceylon Petroleum Corporation (CPC) will issue fuel for, the private sector is left to its own devices. 

People will have to make do with current supply as the economy slowly, but surely, comes to a grinding halt. Acute fuel shortages have now begun to stall food production as farmers and fishermen without diesel and kerosene are stranded and are left disrupting food supply chains, on top of food shortages.

As fuel shortages intensified, the virtual shutdown began with the Government already closing public schools and requesting civil servants to work from home. With the roads now empty and vehicles only seen parked in long lines outside petrol stations, efforts to source fuel have gained momentum. 

Government envoys to countries such as Russia and Qatar have begun. High Commissioner to India Milinda Moragoda and Union Minister of Petroleum and Natural Gas have also met to discuss the possibility of securing petrol and diesel supplies.

While all this effort could have been made in advance as a new shipment would take a minimum of a fortnight to negotiate and arrive for unloading, the lack of planning has all Sri Lankans scrambling without fuel at least till 10 July.

According to the Government, talks were underway with bilateral lenders such as India and China, as well as the International Monetary Fund for funds or credit lines to source fuel. While defaulting on dollar debt initially was to free up purchasing power for such essential imports, dwindling foreign reserves have left our tankers empty. 

Sri Lanka needs $ 6 billion in the coming months to prop up its reserves and pay for the ballooning fuel and food import bill whilst looking to further stabilise the rupee, which has fallen 43% against the dollar this year alone. State-run SriLankan Airlines, which is also to be sold off, struggles to raise funds for CPC jet fuel importation. This has caused the country to drastically reduce monthly fuel consumption from $ 650 million a month to $ 350 million.

Foreign lenders including Standard Chartered and even some Indian banks have had to turn down letters of credit from People’s Bank. This is owing to the State bank credit rating downgrade along with the country on top of existing arrears raising the risk premium for suppliers, thus contributing to the inability to obtain the last fuel shipment.

The Energy Ministry has now announced to allow foreign companies to distribute fuel. A Cabinet paper is being prepared to allow for more fuel distributors, targeting four new players to operate State-run Ceylon Petroleum Corporation (CPC) filling stations. 

According to Energy Minister Kanchana Wijesekera, other foreign companies will be permitted to enter the market alongside CPC and Lanka IOC – the local subsidiary of the Indian Oil Corporation – effectively breaking the Sri Lankan fuel distribution duopoly, as they import oil on credit. 

The pressure continues to mount on the ground level as economic meltdown has already sparked fears of crime waves, starvation and food insecurity. The UN has indicated a $ 47 million aid package seeking “life-saving aid” for the worst affected 1.7 million people. With price hikes since the end of 2021, families have had to resort to skipping meals, eating less expensive foods, or limiting portion sizes.