1. Sri Lanka reels under fuel crunch, power cuts
Energy, Industries Ministers sacked after both criticised govt. response
A crippling fuel shortage and consequent power cuts across Sri Lanka are threatening to worsen the island nation’s persisting economic crisis, while sparking protests from citizens.
Long queues of vehicle users lining up outside fuel stations has become a frequent sight in capital Colombo and in several other parts of the country this week, as Sri Lanka is unable to pay for fuel imports. Already in the midst of a severe dollar crunch — with its foreign reserves drying up — Sri Lanka has been further hit by the oil price surge.
“The problem facing the country is not a power generation or fuel shortage but the non-availability of dollars,” Energy Minister Udaya Gammanpila recently told Parliament. Sri Lanka’s foreign reserves total just over $2 billion since the beginning of this year. The government must repay foreign debt of $7 billion this year, including a $1 billion repayment due in July. In its response to the pandemic, the government imposed import restrictions to save dollars, resulting in frequent shortage of essentials, such as milk powder, pulses, spices.
President Gotabaya Rajapaksa on Thursday sacked Minister of Energy Udaya Gammanpila, who was in charge of fuel imports, and Minister of Industries Wimal Weerawansa. In recent weeks both openly criticised the government’s response to the dollar crisis.
Sri Lanka roughly spends $500 million a month to source diesel and petrol. Early in February, Sri Lanka signed an agreement for a $500 million loan from India to help the island nation with fuel imports. On February 15, Sri Lanka received a 40,000 MT fuel consignment from the Indian Oil Corporation. Sri Lanka on Tuesday announced seven-and-a-half-hour daily power cuts across the country.
Sri Lanka’s power and fuel shortage
According to the schedule available on the Public Utilities Commission’s website, the power cuts will be imposed on a rolling basis across different sections from 8 am to 1 pm and then 6 pm to 8. 30 pm, or from 1 pm to 6 pm and then 8.30 pm to 11 pm.
This is the longest cut since 1996 when Sri Lanka relied on hydropower for a majority of its electricity needs and the reservoirs ran dry.
While President Gotabaya Rajapaksa has asked the Treasury and Central Bank to ensure the import of fuel, the government has been taking several measures to deal with the shortage. Public offices have been asked to run without air conditioners and conserve energy.
The Commission, however, has called the ongoing crisis one of fuel and not energy. On Tuesday the regulatory body said, “What we are facing is not an issue of electricity capacity, but a foreign exchange crisis, as the country does not have enough reserves to import fuel.”
The number of buses running has reduced due to the shortage in fuel, even as Gemunu Wijeratne, President of the Lanka Private Bus Owners’ Association, had warned on Saturday that public transport will collapse if petrol is not provided.
Hydroelectric dams, too, have failed at meeting energy requirements due to the ongoing drought.
Why can’t Sri Lanka pay for fuel?
The island nation has been reeling under an economic crisis for a few years now. In 2019, the newly-elected Rajapaksa government had nearly halved the value-added tax to boost spending. However, the move along with the pandemic-hit tourist sector, which the Sri Lankan economy heavily relies on, have left the country in a vulnerable financial position.
On February 23, the Bank of Ceylon released $35.5 billion to pay for a shipment of 40,000 tonnes of fuel which was kept waiting at the Colombo port for four days as the government struggled to find funds to pay for it. The Public Utilities Commission is now seeking assistance from the government to pay for three ships of fuel that arrived at the port last week.
According to data provided by the Central Bank of Sri Lanka on February 28, its foreign reserves dropped by 24.8 per cent to $2.36 billion in January 2022. This puts Sri Lanka in a precarious position as it has debt totalling over $7 billion to be paid in 2022.
The economy’s condition has raised fears that Sri Lanka might default on its loan and would have to look to the International Monetary Fund (IMF) for assistance – a move rejected by the government so far.
In fact, a Bloomberg report stated that Sri Lanka saw the fastest inflation in Asia in February, with consumer prices rising by 15.1 per cent from the previous year.
The Russian-Ukraine war can also worsen Sri Lanka’s economy as Russia is one of its largest importers of tea, while arrivals from the warring nations form a major chunk of its tourists. With the ongoing crisis and depreciated Ruble, declining imports and tourism from the region have hit Sri Lanka hard.
How has India helped?
Sri Lanka is relying on credit lines and currency swaps with its neighbouring countries such as India, China and Bangladesh for food and medicines and building up its foreign reserves.
India in February had sent 40,000 tonnes of fuel to the country to help allay its crisis. In January, India signed off on a $400-million credit swap facility and deferred an Asian Clearing House settlement of $515.2 million.
n February 2, India had extended a line of credit of $500 million to Sri Lanka to buy petroleum products. “The Government of India (GOI) support for fuel imports by Sri Lanka from India, through the LOC of USD 500 million is in response to GOSL’s urgent requirement. This critical support comes in the wake of a virtual meeting between the External Affairs Minister of India and the Hon’ble Minister of Finance, H.E. Mr. Basil Rajapaksa on January 15, 2022, during which they discussed a range of issues,” the High Commission of India in Sri Lanka had stated in its press release.
Sri Lanka’s Finance Minister Basil Rajapaksa will also be visiting India to formalise an economic relief package for the country. He had earlier visited India in December 2021 to discuss Sri Lanka’s economic crisis.
2. U.S. ‘spared no effort’ to push India on UN vote
No decision yet on sanctions on India for buying S-400 defence system from Russia
The Biden administration pulled out all the stops to persuade India to vote with 141 other countries who condemned Russia for attacking Ukraine, top U.S. diplomat Donald Lu said.
Mr. Lu was speaking to members of the Senate Foreign Relations Committee, which was holding a hearing on U.S.-India relations on Wednesday, just after India abstained from a vote on the UN General Assembly resolution. “We have spared no effort to try to convince India both to vote in UN sessions but also to show support for Ukraine at this critical moment. Those efforts were led by Secretary Blinken,” Mr. Lu, Assistant Secretary of State for South and Central Asia, said.
The Indian Government’s rationale was that it wanted to leave open the possibility of a diplomatic solution and was concerned about the welfare of 18,000 students in Ukraine and working with both sides to ensure their safety, Mr. Lu said.
Senator Chris Van Hollen said concern over students’ lives was all the more reason to condemn Russian action.
At one point, Mr. Young said that India was trying to stay on the side of the winners in the Russian-Ukraine (backed by the West) situation. “I think they’re trying to pick the winning side. That may be a bit of the concern of some… in their government, and we need to demonstrate our firm resolve and unity so that they understand that we’re not going away,” he said.
“We’re gonna stand with the Ukrainian people and make Vladimir Putin’s life hell in coming years.”
Mr. Lu was repeatedly asked if India would be sanctioned for its purchase of the S-400 Triumf missile defence system from Russia under the U.S.’s Countering America’s Adversaries Through Sanctions Act (CAATSA) law.
Mr. Lu said the question was still being considered and he did not want to prejudge the decisions of President Joe Biden or Secretary of State Tony Blinken on whether there would be sanctions or a waiver. “What I can say is that India is a really important security partner of ours now and that we value moving forward that partnership,” he said.
India-Russia S-400 missile system deal:
In October 2018, India signed a $5 billion deal with Russia to buy five units of the S-400 air defence missile systems.
India had moved ahead with the deal despite a warning from the then Trump administration that going ahead with the contract may invite U.S. sanctions.
The Biden administration has not yet clarified whether it will impose sanctions on India under the provisions of the Countering America’s Adversaries Through Sanctions Act (CAATSA) for procuring the S-400 missile systems.
- CAATSA is a U.S. law brought in 2017 which authorizes the U.S. administration to impose sanctions on Iran, North Korea, and Russia.
- The law authorizes the U.S to impose sanctions on countries that have trade relations with the three countries also.
The S-400 was chosen because of its versatile, accurate, and multi-faceted capabilities in comparison to the missile systems offered by the USA.