Oct 05, 2009 (LBO) – Sri Lankan government organizations owed the state-owned refiner, Ceylon Petroleum Corporation (CPC), 61 billion rupees in unpaid bills for fuel supplies by September 2009, CPC Chairman Asoka Thoradeniya said.
The public power utility, Ceylon Electricity Board, alone had not paid 49 billion rupees to the CPC.
Others in arrears on payment for fuel include the controversial state-owned Mihin Lanka budget airline that has been running at a loss, the SLTB state bus service, Road Development Authority, and the ‘Maga Neguma’ rural road development project.
The CPC had made a profit of 5.9 billion rupees up to May 2009 but profits fell later mainly owing to furnace oil imported at high prices being sold at subsidized rates, Thoradeniya said.
The CPC has long faced delayed payments for fuel by state organisations and has struggled to stay profitable, having to sell fuel at subsidized prices.
A delayed payment by one state entity to another creates a debt pyramid, or “circular debt”, which ultimately ends up as debt to state banks.
Under a deal signed with the International Monetary Fund (IMF), Sri Lanka has to come up with a plan to unravel the circular debt by end-December, 2009.
The plan will identify “all elements of circular debt including the identification and reconciliation of debts owed and due among the two largest state-owned enterprises and a mechanism and time frame for settling these debts,” the government has said.
In the past losses from energy subsidies (both fuel and power), which increase debt in state banks and are then funded with Central Bank credit has led to high inflation and balance of payments crises.
It also reduces credit available for the private sector and results in lower economic growth.
In the past losses from energy subsidies (both fuel and power), which increase debt in state banks and are then funded with Central Bank credit has led to high inflation and balance of payments crises.
It also reduces credit available for the private sector and results in lower economic growth.