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CPC’s controversial US$ 2.5 bn re-financing attempt fails

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An attempt to get a 2.5 billion US dollar loan from an unsolicited offer to refinance dollar borrowings from state banks by the state-run Ceylon Petroleum Corporation had failed and nothing concrete came out of it, Energy Minister Udaya Gammanpila said.

The proposed loan had been controversial partly due to a 7 percent upfront fee or “commission” to be charged in addition to a 3.0 percent interest, the Minister said. “The loan has not come so far,” Minister Gammanpila said.

The forecast had now come true. So the question of commission does not arise.”

Meanwhile, Minister Gammanpila told the News in its Page 1 Lead Story last Monday (November 22) that the Government was reaching out to top rung foreign banks and other financial institutions to borrow at lower interest rates so that the CPC debts to the state banks- the Bank of Ceylon and the People’s Bank could be resolved.

The Ceylon Petroleum Corporation had borrowed 3.6 billion US dollars from state banks in periods when the Central Bank was printing money to keep call money rates down creating forex shortages, worsening the country’s total external public sector debt.

When money is printed by the Central Bank to de-stabilize the external sector the CPC is barred from buying dollars, even when a price formula is used to market price and crowd out non-oil imports and keep the external sector in balance, in one of several cascading policy errors, critics have said.

The 2.5 billion US dollar unsolicited loan was one of 23 unsolicited proposals that came to the CPC in the last 8 years, Gammanpila said.

Minister said he had wanted to place newspaper advertisements to call for formal proposals but Treasury in its observations said if no responses came to the advertisement it would hinder its own efforts at raising dollar loans. Instead, the Finance Ministry would appoint a committee and go through the unsolicited proposals and implement them.“When they went through the proposals most of them required either a guarantee from an AAA-rated bank or a guarantee from one of 25 largest global banks,” Minister Gammanpila said.

“Only one company was prepared to take a sovereign guarantee from Sri Lanka’s government. That was New Jersey-based PSL America Inc.” The committee had recommended going ahead with the loan and submitting it to the cabinet.He said there was a 7 percent upfront feeas charged by opposition legislators.

“I also asked why this fee was there,” Minister Gammanpila said. “I was told that CPC was in a massive financial crisis. Sri Lanka was a country with a very low credit rating. So giving a loan to a country in a financial crisis was a big risk).

“So they wanted to ensure the credit risk. This 7 percent was mainly the credit insurance cost and some administration and legal fees,” he said. Minister Gammanpila said the loan was offered at 3.0 percent compared to 5.5 percent being paid to state banks. He claimed the effective rate was therefore 3.23 percent.

“We are paying 5.5 percent to banks. Even after paying the fee our cost is only 3.23 percent,” he claimed. “This is attractive from the point of view of the CPC.” “So we decided to submit it to the cabinet but I told them this was too good to believe.”

De Silva had earlier said that the loan was also linked to a company called Concept Global which had an address in Rajagiriya which appeared to be an ordinary house and not a company that was to get the 175 million dollar commission. He had earlier also warned to be careful of any possible attempts at money laundering when unsolicited deals are entertained.

Minister Gammanpila said he submitted the proposal to the Cabinet because he may be accused of not using the opportunity when there was a chance.

The CPC is also attempting to get 3.6 billion US dollars in suppliers credit from Oman and a 500 million US dollar credit from India to pay for oil, which will also increase external debt.

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