Sri Lanka Closes Oil Refinery Due To Forex Shortage, Not COP26 Related – The Tokenist
Sri Lanka has temporarily shut down its only oil refinery, but not because of its environmental commitments made at the 2021 United Nations Climate Change Conference (COP26). Instead, the move comes as the country can’t afford to buy crude oil due to an ongoing severe foreign exchange crisis.
Dollar Shortage Compels Sri Lanka to Close Down Oil Refinery
Sri Lanka’s Minister of Energy, Udaya Gammanpila, closed the country’s only oil refinery on Monday. Known as Sapugaskanda, the oil refinery facility has a capacity of 50,000 barrels per day and will be shut for 50 days. Minister Gammanpila said:
“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.”
The news has already stirred up fears among Sri Lankans, triggering long queues at petrol stations. However, the Minister assures there will be no shortage of oil. “The long lines at fuel stations will stop in a couple of days when the public realizes there is no need to panic,” he said.
The move is considered a short-term remedy for managing dwindling foreign exchange reserves. Faced with a shortage of dollars, the country is suffering from double-digit inflation. According to the country’s Media Minister, Dullas Allahaperuma, Sri Lanka is even looking at options for a bailout of its economy.
Bailout is a blanket term for extending financial support to a company or country that is on the brink of bankruptcy. Also known as capital injection, a bailout can take the form of loans, cash, bonds, or stock purchases.
Reportedly, Sri Lankan officials are considering asking for financial support from the International Monetary Fund (IMF), Allahaperuma said.
“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,”
The country also aims to settle with India regarding a $500 million credit line for purchasing fuel and boosting reserves. Notably, Sri Lanka purchased approximately $700 million worth of fuel during the first nine months of this year, which accounts for the country’s highest import expenditure.
President Gotabaya Rajapaksa declared a state of emergency back in August, an attempt to control soaring prices and tackle a shortages of staple goods.
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Sri Lanka To “Protect Biodiversity” After COP26
Earlier this year, a chemical-laden cargo ship caught fire near the coast of Sri Lanka, prompting global backlash at the country’s way of dealing with environmental issues. To address such concerns, Sri Lanka’s president made commitments at COP26 to preserve and protect the environment and Sri Lanka’s rich biodiversity.
“As a developing tropical island nation with abundant biodiversity, Sri Lanka is deeply aware of the impacts of climate change. Our rich philosophical heritage, shaped by Lord Buddha’s teachings, places great value on environmental integrity. Sustainability is therefore at the heart of our national policy framework.”
However, critics claim that conditions in the country are at odds with such claims. Shanakiya Rasamanickam, a member of the country’s Parliament, accused the president of committing “ecocide”, saying that Sri Lanka’s biodiversity and forests are being destroyed by the actions of big business.
“There is a massive deforestation that is happening in this country, sand miners are running havoc in this country and destroying the eco-system. Wells are drying up due to the excessive mining of sand. Whilst doing all this within the country, President Gotabaya Rajapaksa has gone to Scotland and is boasting about how Sri Lanka would be the first country to be 100% organic.”
Reportedly, the current government is deemed responsible for the high deforestation rate. Since early 2020, almost 700,000 hectares of forest land have been transferred to Divisional Secretariats, which can be used for development activities.
Meanwhile, two of Sri Lanka’s neighbors, China and India, which are respectively the world’s largest and third-largest greenhouse gas emitters, watered-down on their environmental commitments in COP26. Instead of pledging to “phase out” coal, they promised to just “phase down” the fossil fuel, sparking controversy and placing question marks around the effectiveness of the Glasgow agreement.
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About the author
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird’s US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firms specializing in sensing, protection and control solutions.