Cash-strapped Sri Lanka gets Russian oil to ease shortages

Cash-strapped Sri Lanka took delivery on Saturday of Russian oil -- which could soon be subject to a European embargo -- to restart operations at the country’s only refinery, the energy minister said.

The island nation is suffering its worst economic meltdown since independence, with shortages of fuel and other vital goods making life miserable for its 22 million people.

The state-run Ceylon Petroleum Corporation (CPC) refinery was shuttered in March in the wake of Sri Lanka’s foreign exchange crunch, which left the government unable to finance crude imports.

The Russian crude delivery had been waiting offshore of the capital Colombo’s port for over a month as the country was unable to raise $75 million to pay for it, energy minister Kanchana Wijesekera said.

Colombo is also in talks with Moscow to arrange direct supplies of crude, coal, diesel and petrol despite US-led sanctions on Russian banks and a diplomatic outcry over Russia’s invasion of Ukraine.

“I have made an official request to the Russian ambassador for direct supplies of Russian oil,” Wijesekera told reporters in Colombo.

“Crude alone will not fulfil our requirement, we need other refined (petroleum) products as well.” Around 90,000 tonnes of Siberian light crude will be sent to Sri Lanka’s refinery after the shipment was acquired on credit from Dubai-based intermediary Coral Energy.

Wijesekera said Ceylon Petroleum Corporation (CPC) was already in arrears of $735 million to suppliers and no one came forward to even bid for its oil tenders.

He added that the Siberian grade was not an ideal match for the refinery, which is optimised for Iranian light crude, but no other supplier was willing to extend credit.

Sri Lanka will nonetheless call for fresh supply tenders in two weeks before the stock of Siberian light runs out, Wijesekera said.

The Sapugaskanda refinery on Colombo’s outskirts will resume work in about two days.

European Union leaders are meeting on Monday in an effort to negotiate a fresh round of sanctions against Russia over the Ukraine conflict, including an oil embargo.

Russian oil is already subject to a US embargo and its barrels have traded at a steep discount from international benchmarks, which have risen substantially since the conflict began.

Sri Lanka’s economic crisis has seen long queues of motorists outside gas stations, waiting hours and sometimes even days for scant supplies of petrol and cooking gas.

Its people are also grappling with acute shortages of imported food and pharmaceuticals, along with record inflation and lengthy daily blackouts.

Anti-government protests erupted into riots earlier this month, leaving nine people dead and many more wounded.

A demonstration outside President Gotabaya Rajapaksa’s office in Colombo demanding his resignation over the government’s economic mismanagement entered its 50th day Saturday.

Sri Lanka’s prime minister said on Thursday that he will quickly prepare an economic reform program and seek approval from the International Monetary Fund - because global inflation and the financial impact of Russia’s invasion of Ukraine on other countries could limit their ability to help the island nation.

Prime Minister Ranil Wickremesinghe said that officials have reached agreement on basic reforms concepts with the IMF and that he plans to have the economic reform programme ready within two weeks. After it is finalised, an IMF delegation will visit Sri Lanka to evaluate the programme.

“I have placed my special attention on this because of the present global situation, the war in Ukraine and global inflation. From what we can see a number of countries may have to face economic problems like ours,” Wickremesinghe said.

He added: “At the moment the United States and the Europe are spending a lot on the war and there is a possibility of the aid given to us being reduced.”

Sri Lanka is nearly bankrupt with an acute foreign currency crisis that resulted in a foreign debt default. The country announced last month that it is suspending nearly $ 7 billion foreign debt repayment due for this year out of about $25 billion due through 2026. Sri Lanka’s total foreign debt stands at $51 billion.

The IMF said in a statement Thursday said that a team remotely concluded initial discussions about Sri Lanka’s reform plan on Tuesday.

“The team made good progress in assessing the economic situation and in identifying policy priorities to be taken going forward,” the statement said.

The statement added that discussions focused on restoring fiscal sustainability while protecting the vulnerable and poor; ensuring monetary policy credibility and exchange rate regimes; preserving financial sector stability; and structural reforms to enhance economic growth and strengthen governance.