New Delhi
A year after crisis-hit Sri Lankans stood in long queues outside fuel stations, foreign oil companies will be able to sell fuel in the island nation at a lower rate than what the state-owned oil firm sells at.
The Sri Lankan cabinet on March 27 decided to grant licenses to foreign oil companies to sell oil in the domestic retail market. Three companies -- China's Sinopec, United Petroleum of Australia, and RM Parks of the United States in a collaboration with Shell -- will soon start operating in the country.
1) Cabinet approval grated to award licenses to Sinopec, United Petroleum, Australia & RM Parks of USA in a collaboration with Shell Plc to enter the Fuel Retail market in Sri Lanka.
— Kanchana Wijesekera (@kanchana_wij) March 27, 2023
These companies will be allowed to import, store and distribute petroleum products for 20 years. They will be allowed to operate 150 fuel stations that are currently run by the state-owned Ceylon Petroleum Corporation. Moreover, they will establish 50 fuel stations at new locations.
The entry of Chinese, American and Australian oil firms in Sri Lanka is significant as the island nation only has two major oil companies. Ceylon Petroleum Corporation, which is owned by the government, controls 80 percent of the fuel supply, while the Sri Lankan subsidiary of the Indian Oil Corporation -- Lanka IOC -- controls the rest.
The latest decision comes at least nine months after the government decided to open Sri Lanka's oil retail market to "companies from Oil producing nations" to resolve acute shortages of fuel during its worst economic crisis since gaining Independence in 1948.
Sri Lankan energy minister Kanchana Wijesekera had tweeted: "They will be selected on the ability to Import Fuel and operate without Forex requirements from the Central Bank of Sri Lanka and banks for the first few months of operations."
1) Cabinet Approval was granted to open up the Fuel Import and Retail sales market to Companies from Oil producing Nations. They will be selected on the ability to Import Fuel and operate without Forex requirements from the CBSL and Banks for the first few months of operations.
— Kanchana Wijesekera (@kanchana_wij) June 28, 2022
However, the Sri Lankan government won't find it easy to implement its reforms in the fuel industry. Workers Unions have been opposing the plan to allow grant licenses to the three foreign firms and partially privatise the Ceylon Petroleum Corporation.
The 2022 Sri Lanka economic crisis
Last year, amid the coronavirus pandemic and the Ukraine war, Sri Lanka faced an economic crisis.
The island nation defaulted on its debt for the first time since Independence. With foreign exchange reserves at a critical level, the nation of 22 million was unable to pay for imports of essential items like fuel, food and medicines. According to the World Bank, Sri Lanka's economy contracted by 7.8 percent in 2022.
A year later, Sri Lanka is in the midst of an International Monetary Fund-backed recovery, under which the government recently slashed fuel prices by 8 to 26 percent.
In March, the IMF approved a $3 billion package for the crisis-hit island nation.
World Bank's position on Sri Lanka's recovery
While the IMF has released its package, its sister organisation World Bank's outlook on the Sri Lankan economy looks bleak.
"The fluid political situation and heightened fiscal, external, and financial sector imbalances pose significant uncertainty for the outlook," the World Bank's latest Sri Lanka development update read.
The international institution added that a slow debt restructuring process, a sharper global slowdown, and a prolonged recovery from the scarring effects of the current crisis are key risks to the Sri Lankan economy.
However, Faris Hadad-Zervos, World Bank's Country Director for Maldives, Nepal and Sri Lanka, sees a brighter side too: "The crisis provides a unique opportunity to implement deep and permanent structural reforms that may be difficult in normal circumstances. Sri Lanka can use this opportunity to build a strong and resilient economy."