• New deadline for fuel supply cut
• Original deadline passed in September

By Madhusha Thavapalakumar Despite a serious threat to cut off fuel supply to SriLankan Airlines by September, the Ceylon Petroleum Corporation (CPC) has belatedly extended the deadline for such a suspension by another two months, The Sunday Morning Business learns. A CPC official who wished to remain anonymous told The Sunday Morning Business that the decision was arrived at during CPC’s last board meeting despite the national carrier not having settled the debt to CPC by the stipulated deadline. In early July this year, the CPC threatened to immediately cut off fuel supply to SriLankan Airlines unless a minimum payment of Rs. 1 billion was made within a few days. This drastic step was necessitated as the airline had exceeded the credit limit for jet A1 fuel but had not made any payments to the CPC. It is understood that by this point, SriLankan owed an accumulated debt of Rs. 12 billion to CPC for the aviation fuel supplied over a three-year period. However, following several rounds of discussions with the intervention of the Government, CPC had agreed to grant SriLankan Airlines a grace period of three months, which had expired by end-September. In mid-September, with the deadline fast approaching, the CPC renewed its threat to suspend fuel supply from 1 October if the airline did not come up with a repayment plan. However, it appears that the CPC had a change of heart and decided to further extend the grace period. According to our source, there is even a possibility of a further extension at CPC’s next board meeting. Sources also indicated discussions are underway between SriLankan Airlines and the Treasury and the Treasury is likely to step in and pay SriLankan’s outstanding payments to CPC. However, the source said the CPC has not been officially informed about this yet. The official noted it would be timely if the Treasury steps in and settles payments as the CPC was struggling with cash flow issues. As at the end of July this year, the CPC had to collect unpaid dues amounting to over Rs. 70 billion, including Rs. 46 billion in payments that were due from the Ceylon Electricity Board (CEB). According to the Ministry of Finance’s Mid Year Fiscal Position report, the CPC’s operational losses reached Rs. 4.294 billion in the first four months of 2019 due to the increased international oil prices combined with the absence of a pricing mechanism for the products used in aviation and power generation sectors, and kerosene. However, due to exchange rate differences coupled with the introduction of a cost-reflective pricing formula for fuel effective from May 2018, the CPC’s overall profits reached Rs. 16 billion in the first four months of 2019. The CPC recorded a negative net worth of Rs. 262.8 billion at the end of April 2019. The report emphasised the importance of optimally utilising the refinery capacity of the CPC in order to reduce the overall cost while employing proper operational strategies to reduce the inefficiencies and ensure maximum utilisation of unionised human resources. Meanwhile, the SriLankan Airlines’ loss during the 10-year period from 2009 to 2019 is Rs. 240 billion. In addition to the losses incurred, the total value of loans owed by SriLankan Airlines to state banks and state institutions including the CPC is Rs. 146 billion. In May this year, an expert committee appointed by President Maithripala Sirisena submitted its report on restructuring SriLankan Airlines to the Cabinet of Ministers and the report was approved. SriLankan Airlines is reportedly in the process of implementing the restructuring plan to save itself from financial struggles, although the progress of implementation is not known. The committee made recommendations with respect to the financial restructuring, corporate restructuring, preparation of an effective strategic plan and operating business model, and human resource restructuring of SriLankan Airlines, ensuring an independent procurement process and exploiting synergies in brand promotion.