Sri Lanka Temporarily Shuts Down Its Sapugaskanda Oil Refinery

Reuters, November 16, 2021

Sri Lanka has temporarily shut its only oil refinery as part of efforts to manage dwindling foreign exchange reserves, the energy minister said on Tuesday, triggering long queues at petrol stations.

The 51-year old Sapugaskanda Oil Refinery, which has a capacity of 50,000 barrels per day, was closed on Monday, the minister, Udaya Gammanpila, said at the weekly Cabinet briefing.

"The refinery will be closed for about 50 days. Sri Lanka has very limited foreign exchange reserves at the moment and we need it more for essentials like food and medicine," he said.

"The long lines at fuel stations will stop in a couple of days when the public realises there is no need to panic."

Gammanpila said fuel imports would resume once the government was able to raise sufficient dollars but did not give details of a timeline.

Faced with rising inflation and dwindling reserves, the government is discussing a bailout for its economy, cabinet spokesman and Media Minister Dullas Allahaperuma told reporters.

"Cabinet members discussed at length the pros and cons of Sri Lanka going to the International Monetary Fund for support at Monday’s meeting but no final decision has been reached,” he said.

Sri Lanka is also attempting to negotiate a $500 million credit line with India to buy fuel and boost reserves, which dropped to $2.27 billion at the end of October. During the first nine months of 2021, Sri Lanka spent US$692 million on fuel imports, its highest import expenditure.

In August, President Gotabaya Rajapaksa declared a food emergency to contain soaring prices and tackle shortages of staples as the foreign exchange crisis deepened.

Consumers have been struggling with shortages of multiple essential items including cement, milk powder, rice and cooking gas over the last few weeks.

A decision by the government to ban chemical fertilizer imports, combined with bad weather, has also driven up vegetable and fruit prices, with food inflation hitting 12.8% in October.

(Reporting by Uditha Jayasinghe; Editing by Alasdair Pal and Robert Birsel)

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