Rising
fuel prices: SOS to OPEC
Jayantha Dhanapala on special
assignment for Finance Ministry
By Feizal Samath
The government, backed by a new Indian credit line that will ease
pressure on the exchange rate, is using diplomatic channels for
long-term fuel imports from "friendly" countries while
veteran diplomat Jayantha Dhanapala’s assistance has been
sought to negotiate a special loan facility from OPEC.
“We
are hoping Mr. Dhanapala could use his extensive diplomatic contacts
to swing a deal with the OPEC Fund which has provision to provide
non-OPEC members with special facilities,” Finance Secretary
P.B. Jayasundera said. OPEC (Organisation for Petroleum Exporting
Countries) controls global oil production and prices.
Mr.
Dhanapala, a retired UN Under Secretary General and Sri Lanka’s
most accomplished diplomat, now heads the government’s Peace
Secretariat and is not involved in any foreign affairs assignments.
The former UN diplomat confirmed he had discussions with the Finance
Ministry on this issue. “They have made some contacts with
OPEC and requested me for some help,” he told The Sunday Times,
adding that he was awaiting further intimation from the ministry.
The OPEC Development Fund has various windows for soft loans particularly
for countries like Sri Lanka that pay high prices for crude oil,
Mr. Dhanapala said.
Finance
Minister Sarath Amunugama has been discussing long-term fuel import
contracts with Saudi Arabia, Iran and some other countries with
prices that would be more favourable than spot market rates which
is how fuel is imported now. Long term contracts, a mechanism used
some years ago, will not be affected by sharp swings in the spot
market.
The
main focus of long-term oil contracts is to ease pressure on the
rupee and the trade balance and in turn boost foreign reserves.
These proposed arrangements though unlikely to bring down fuel prices
locally, are expected to halt the rapid depreciation of the rupee
against the US dollar and in turn reduce food import prices. On
Friday, the government announced an Indian line of credit of $150
million for petroleum imports to be made use of by the Ceylon Petroleum
Corporation and IOC. The loan is repayable over seven years at concessional
interest rates.
“We
were negotiating a three-year loan facility but the Indians agreed
to seven years which is even better,” the Finance Secretary
said explaining that refined oil products would be imported from
India under this package. The fresh inflow of dollars is likely
to stabilise the dollar at the Rs 100-102 range in coming weeks.
World market fuel prices have been rising and according to the government’s
two-long pricing mechanism should have also risen locally by at
least Rs 10 per litre in the case of petrol. Finance Ministry officials
said a fuel price increase was inevitable but has been delayed to
lessen the burden on the poor, already affected by high COL. The
opposition however accused the government of delaying the increase
because any rise would have made it unpopular before last week’s
provincial council poll.
According
to current estimates, the government spends $900 million a year
on crude oil imports at $32 per barrel and an extra $250-350 million
when it is at $40 per barrel. “Our biggest exercise now is
to ease pressure on the exchange rate and that’s why we are
looking at a range of options like hedging facilities, long term
contracts, etc to minimise the impact that spot market oil prices
have on the economy,” Mr. Jayasundera said. Oil is currently
trading at $38-39 per barrel now but is expected to fall by next
month due to West Asian developments following the pullout of US
administrators from Iraq.
Another
possible $100-150 million from the third player in the oil import
and distribution market here would add to foreign exchange reserves,
he added. The government is negotiating with Chinese and Indian
parties for the vacant third position in the market. |