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One bn dollar Iranian credit line extended

Sri Lankan and Iranian leaders meet in Colombo

With the second tranche of USD 2.6 billion IMF facility due in several weeks, Sri Lanka has received a mega boost by Iran extending an interest free credit facility for the purchase of Iranian crude oil. The two countries finalised the agreement on September 3 in Teheran.

Treasury Chief Sumith Abeysinghe yesterday told The Island that Major General (retd) Asoka Thoradeniya, Chairman of the CPC had signed the agreement on behalf of Sri Lanka with the National Iranian Oil Corporation, an Iranian government subsidiary.

Sri Lanka’s Ambassador in Teheran M. M. Zuhair told The Island that this exclusive financial facility had come into operation in January, 2008 following President Mahinda Rajapaksa’s meeting with Iranian President Dr. Mahmoud Ahmadinejad in Teheran in November 2007.

Responding to The Island queries at a press conference at the Mahaweli Centre last week, Public Administration Minister Dr. Sarath Amunugama said that the country would receive the second tranche of the IMF facility shortly and the economy was strong though UNP leader Ranil Wickremesinghe had claimed of a clandestine move to sell a large stock of gold held by the Central Bank.

At the same press briefing, Minister Maithripala Sirisena revealed that the country held gold worth USD 4 billion in addition to 4 and a half billion USD in foreign reserves.

With a presidential election and general elections expected in early 2010, Sri Lankan’s liquidity would be bolstered considerably, easing pressure on the economy.

Authoritative sources said that the Iranian facility could not have come at a better time as the country struggled to maintain the momentum of the combined security forces offensive against the LTTE. "There was no denying that the country was hard pressed for foreign currency to fund the purchase of essential military hardware," an official said. He said, "Last year, crude oil imports exceeded US$1 billion in total value with Sri Lanka not having to pay hard cash to open Letters of Credit, while Iran provided 4 months interest free credit and a further three months at a concessionary rate of interest." He said that these facilities were functional at Sri Lanka’s option.

Sources in Colombo said though the credit package had expired on August 31, 2009, Zuhair had been successful in negotiating the extension of the special package till the end of August, 2010, with the National Iranian Oil Corporation. Sources said that the fresh agreement had been negotiated in keeping with the original agreement.

Iran is a member of the oil producing countries’ organisation OPEC and crude oil prices are determined on the monthly average of Oman and Dubai spot assessment of crude oil prices.

Early last month, Iran agreed to revise Sri Lanka’s 30% component for the Sapugaskanda Oil Refinery Expansion and Modernization Project payable in advance, to be paid on a staggered basis spread over the three year project execution period. This followed after Sri Lanka said that it could not raise the 30% component of the US$ 1.47 projected cost, at once.

Iran has agreed to fund US$ 1.03 billion repayable over a 15 year period with a five year grace period. The project involves the upgrading of the existing refinery built in 1969 and expanding its refinery capacity from 50,000 barrels per day to 100,000bpd sufficient to meet the country’s requirements of refined oil.

Military sources said that Iran had come to Sri Lanka’s rescue during the then President Chandrika Kumaratunga’s administration when the LTTE threatened to overrun the Jaffna peninsula. Several plane loads of military supplies sent from Teheran at short notice and support provided by several other countries, including Pakistan and China, had helped Sri Lanka to thwart the LTTE plan.

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