Economic crisis in Lanka: several days of waiting for a liter of fuel

For the past two months, Sri Lanka had relied heavily on a $500 million line of credit from India to import fuel, but that has now run out.

At least 12 people have died in fuel queues so far, with the latest victim being a 19-year-old who was killed when a lorry collided with his motorbike.

In many parts of Sri Lanka, the winding queues outside petrol stations stretch for several kilometres. Waiting time is now measured not in hours, but in days. Motorists have camped outside gas stations, sitting and even sleeping in their vehicles in the hope that a tanker truck will arrive. Some motorists waited in line for more than a week.

Yet on Monday evening (June 27), they were told that only vehicles classed as those for “essential services” would be issued fuel until July 10.

The crisis is such that only medical personnel and security force personnel can buy fuel from June 27 to July 10. Bus services between provinces across the country will also be suspended due to fuel supply restrictions, Cabinet Spokesperson Minister Bandula Gunawardena has said. Rail services are not affected at this time. Nevertheless, the restrictions mean that the country will be partially closed for at least 13 days.

Minister Gunawardena said steps have been taken to ensure an uninterrupted supply of fuel and cooking gas from July 10. That claim is unlikely to command much confidence from a population that has seen such assurances fail in recent months.

Assurances that the government was above the problem rang hollow, especially since hours before the announcement it had set up a token system to distribute fuel to motorists. The program was implemented by the army. Motorists’ coordinates are removed and they must show the respective tokens when a fuel tank arrives at the station. What happens to this program after the announcement that fuel will only be issued to essential services remained unclear on Monday evening.

At least 12 people have died in fuel queues so far, with the latest victim being a 19-year-old who was killed when a lorry collided with his motorbike as he waited in a queue on June 24.

Even before Monday’s announcement, work in some areas had already been halted due to fuel shortages. Schools in Colombo and other major urban centers have been closed throughout the past week to save fuel, with students returning to the online learning system that was in place during COVID. These schools were due to reopen three days a week from June 28, but the Ministry of Education reversed this decision after the Ministry of Energy and Energy said it could not guarantee the distribution of fuel. Schools in urban areas will now remain closed until July 10.

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Government offices have also been ordered to operate with only the minimum number of essential staff required until further notice. Many of the government’s 1.5 million employees have to work from home. The private sector was invited to do the same.

Meanwhile, the duration of daily power cuts in place for much of the year has again been increased from 2.5 hours to 3 hours from Monday June 27 due to a shortage of fuel for diesel power stations. There are fears that the power cuts could be prolonged further.

The crippling fuel shortage is the result of the worst economic crisis in Sri Lanka’s history. Its severely depleted foreign exchange reserves have prevented the country from importing essentials including fuel, cooking gas, food and medicine.

A freighter carrying 40,000 metric tons (MT) of gasoline was due to dock in Colombo on June 23, but Power and Energy Minister Kanchana Wijesekara tweeted on Saturday June 25 that shipments of gasoline, diesel and crude oil forecast for the next two weeks would not arrive for “banking and logistical reasons”.

Essentially, fuel suppliers no longer trusted Sri Lanka to meet its payment obligations, Mr Wijesekara told the media at the Sunday June 26 press conference. State-owned fuel retailer Ceylon Petroleum Corporation (CPC) owes $735 million in unpaid fuel bills. As such, no supplier is willing to send their shipments to Sri Lanka now unless payment is made in advance.

Although fuel stocks are almost exhausted, the price of fuel has again increased significantly as of June 26. The CPC and its competitor Lanka Indian Oil Company (LIOC) have hiked diesel prices by 15% to Rs. 460 while petrol has been increased by 22% to Rs. 550.

The government had tried to keep the country moving by prioritizing the distribution of fuel to public transport and essential services, but this has not met with the expected success so far. A decision to prioritize fuel distribution to medical staff at some gas stations on Fridays generally failed last week because the decision was not properly communicated to stations, forcing doctors, nurses and other healthcare workers to line up for hours. The shortage has already affected work in some public hospitals, with staff unable to report for work. Several hospitals have decided to only operate emergency services until further notice.

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Sunday’s fuel hike led to a further increase in prices for many goods and services. Private bus operators, who account for the majority of buses operating in the country, have demanded an immediate 35% fare increase. Rickshaw drivers also increased their fares while container freight charges increased by 10%. The price of restaurant meals and take-out meals has also increased.

For the past two months, Sri Lanka had relied heavily on a $500 million line of credit from India to import fuel, but that has now run out. Discussions on securing another Indian line of credit are currently underway, but as Prime Minister Ranil Wickremesinghe has noted, India has its limits too.

“We have taken out loans amounting to US$4 billion under the Indian line of credit. We have requested more assistance in the form of loans from our Indian counterparts. But even India will not be able to support us continuously in this way. Even their help has its limits. On the other hand, we too must have a plan to repay these loans. These are not charitable donations, Mr Wickremesinghe told parliament on June 22.

The only option for the country is to hold talks with the International Monetary Fund (IMF) to reach an agreement at staff level, the prime minister said. A visiting IMF team held talks last week with President Gotabaya Rajapaksa, Prime Minister Wickremesinghe and other key ministers and officials.

A delegation from New Delhi, led by Foreign Minister Vinay Kwatra, Economics Department Secretary Ajay Seth, Chief Economic Adviser V. Anantha Nageswaran and Joint Secretary of the Ocean Region Division Indian to the Ministry of External Affairs Kartik Pande, also visited Colombo. Thursday for interviews.

Time is running out, the government is now scrambling to get help to get fuel. Ministers are sent to Qatar and Russia to negotiate assistance in obtaining fuel. On Monday, June 27, Sri Lanka’s High Commissioner to New Delhi, Milinda Moragoda, met with Union Minister for Housing and Urban Affairs and Petroleum and Natural Gas Minister, Hardeep Singh Puri.

Meanwhile, a high-level delegation from the US Department of Treasury and State Department is also on the island from June 26-29. “In all of their meetings, they will explore the most effective ways for the United States to support Sri Lankans in need, Sri Lankans are working to resolve the current economic crisis, and Sri Lankans are planning a sustainable and inclusive economy for the future,” the U.S. Embassy in Colombo said.

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As diplomatic initiatives continue, many citizens now face the prospect of trying to live their lives without fuel for at least the next two weeks. The government has not been able to explain how it intends to compensate daily workers who will be affected by the new restrictions. The economic crisis has left them without a safety net.

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