$2.5 b controversial deal in the pipeline for CPC funding
The debt-ridden Ceylon Petroleum Corporation (CPC) will fall into a liquidity trap due to its quest for foreign funds from local agents of international private lenders to settle its fuel bill and debt servicing for bank borrowings despite Treasury support to secure those funds locally, informed sources said,
The Treasury had given a sovereign guarantee to the CPC to raise US$1.8 billion from the two state banks while the CPC owed $3.3 billion to these banks. But despite the Treasury offer, the CPC has separately obtained proposals from several local agents of private lenders for a $1 billion loan which was then submitted by the Energy Minister Udaya Gammanpila to the cabinet for approval, the sources said.
This was approved by the Cabinet which also directed the Finance Ministry to appoint a committee to evaluate these proposals and find a suitable offer.
The committee after evaluating 23 proposals recommended a list of prospective bidders in accordance with their suitability and reasonable interest rates. The normal interest rate in the international market is 0.5 percent to 1.5 percent. But the average quoted rate of all the bidders was much higher than normal international practices.
The sources said another cabinet memorandum was presented to the Cabinet for the second time with the selected list of prospective bidders according to their suitability and interest rates.
However, a strange thing happened when presenting this memorandum to the Cabinet. When perusing relevant documents it has been revealed that this time the CPC was seeking to raise $2.5 billion from the international market although the cabinet has previously given the greenlight to go ahead with the $1 billion proposal.
It has been revealed at the Cabinet meeting only one party, the US New Jersey-based PSL America Inc the financial arm of Global Concepts, Inc. had made a favourable offer, whereas others had required guarantees from international banks.
The Procurement Committee of the Finance Ministry had then recommended PSL America based on which the Energy Minister had submitted a memorandum to the Cabinet for approval.
In another strange development, the selected bidder Global Concepts which was placed 4th in the priority list of the evaluation committee report became the 3rd suitable bidder in the list submitted to the cabinet for its approval.
The Rajagiriya address given by the local agent of the US company also appeared to be misleading as there was no name board of any company at the location and it was a normal house and not an office, the sources revealed. Ignoring these mysterious changes made in the memorandum, the cabinet gave approval to accept Global Concepts, Inc, informed sources said.
The conditions put forward by the Global Concepts in its funding proposal are now being evaluated and, once approved, would be the largest foreign loan facility to be obtained from a private international lender in recent history, a senior Treasury official said.
According to the Cabinet memorandum, this US company has offered the loan facility with a grace period of two years at an annual interest rate of 3 percent and handling charge of 7 percent with a repayment period of 12 years.
The CPC will have to pay $900 million as interest for 12 years while monthly interest is $75 million along with an additional $175 million as handling charges (commission to the local agent), provisional government estimates showed.
The Energy Minister disclosed recently that the cabinet has approved this offer of Global Concepts and it is now in the pipeline for finalisation but no final agreement has been reached as yet.
This proposal is in the pipeline among several other similar offers with various amounts such as $3.6 billion from the Oman’s Credit line offer, $500 million Indian credit line and the Central Bank’s offer of $600 million for the remaining quarter of the year for the fuel procurement.