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US$1.5 bln loan from China to prop up ailing Lankan economy

( April 29, 2012, Colombo, Sri Lanka Guardian) Sri Lanka has once again, like many times in recent years, sought the assistance of China to help avert a balance of payments crisis and also fund two key projects, official and political sources said.

In a visit just before the Sinhala and Hindu New Year, that was kept under wraps, a team of officials led by Treasury Secretary Dr. P.B. Jayasundera went to China and secured assurances of a US$1.5 billion loan facility from a state bank.

“My information is that the visit was apparently to secure funding for balance of payments support,” noted Eran Wickramaratne, economist and UNP Parliamentarian, acknowledging that he had few other details.

Informed sources said the team offered the Sapugaskanda oil refinery refurbishment and Moragahakanda project for funding.

The Chinese bank, the name of which has not been disclosed as the visit was known to only a few officials and ministers, has studied the feasibility report on the proposed Sapugaskande refinery expansion from 50,000 barrels per day to 100,000 barrels.

The Treasury Secretary has called a media conference tomorrow (Monday) but his media team has not disclosed what the announcement is going to be. In late March, Dr Jayasundera held a rare media conference but noted this would be the start of a regular briefing with the media. Ironically he assured that the US dollar would settle down at Rs 125, a prediction that hasn’t come true so far with the Rupee rising to Rs 133 on Wednesday and settling to Rs 130 on Friday.

The ageing Ceylon Petroleum Corporation refinery desperately needs repair and expansion and is only able to refine just a fraction of crude oil exports, necessitating the need for a larger quantity of refined crude. Refined fuel is costlier and eating into scarce foreign reserves, economists say.

In the backdrop of the Chinese loan offer for the CPC refinery, Lanka IOC Plc, the Sri Lankan unit of India's state petroleum company Indian Oil Corp Ltd has also expressed willingness to invest US $2-billion to upgrade the refinery.

K.R. Suresh Kumar, Managing Director of Lanka IOC told the Sunday Times that his company is keen to extend assistance for Sri Lanka in whatever possible manner towards refurbishing or revamping the facility. Their offer has been conveyed in writing to the Petroleum Industries Ministry recently, he said.

When asked by the Sunday Times, Petroleum Industries Minister Susil Premajayantha, said he hasn’t received any such proposal. He was also unaware of the recent negotiations in China by the Jayasundera-led team.

However the Minister said Sri Lanka has been engaged in discussions for a loan facility of up to US $2 billion with China, Russia, Czech Republic and South Korea to double the capacity of the over 40-year old refinery. An earlier offer by Iran to help fund the expansion and renovation fell through.

The sources said that China is Sri Lanka’s leading lender at present, providing loan facilities but at interest rates higher than that of multilateral agencies for the country’s infrastructure development and other mega projects, with the repayment period running up to 20 years.

Long term borrowing from China at interest rates ranging from 2-3% and 6-7% under strict conditions laid down by Chinese lending institutions was the only option available to the Sri Lankan government due to strained relations with the West, the sources said.

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