Chinese ship deal triggers financial hardships for Shipping Corporation

The Ceylon Shipping Corporation ( CSC) is now running at a loss owing to heavy loan interest payable to a state commercial bank for the purchase of two vessels from China and a decline in revenue from coal transportation, the 2017 performance report released by CSC revealed.

The CSC has been facing financial hardships in the challenging market conditions amidst stiff competition since the loan repayments to the People’s Bank commenced in August 2016.

According to the report, CSC has incurred a loss of Rs. 621.million due to the payment of two vessels loan interest of Rs.744 million and decreasing profit from transportation of coal.

The loans had been guaranteed by the Treasury, which means taxpayers have to bear the burden if no action has been taken to rectify the situation, a senior Treasury official said.

Revenue from ship agency services was reduced due to decrease of import of fertilizer by state sector fertilizer companies with the change of system of providing subsidies for this commodity.

However CSC’s two ships performed nine voyages to carry 0.49 million metric tons of coal during South- West monsoon period and two vessels were deployed in global charter market during the monsoon period having 98 per cent of utilisation factor, the report disclosed.

The CSC should be transformed to a profit- making venture by restructuring its whole operations as the Treasury cannot bear the losses incurred by the state run corporation as a result of misdeeds of the previous regime, official sources said.

The Financial Crime Investigation Division (FCID) is conducting investigations into a complaint lodged by Deputy Minister of Law and Order Nalin Bandara in 2015 and a statement from him was recorded by the FCID recently.

According to Deputy Minister Bandara, an excess of US$15 to 20 million had been allegedly obtained by interested parties in the deal amounting to $ 70 million but the actual amount paid for the purchase of two vessels was around $40 to 50 million.

The CSE has taken another loan of $10 million at Libor plus 3 per cent to pay interest on the loan, he disclosed.

In February 2014, the cabinet of ministers had approved the controversial deal to buy two vessels ( Panamax Bulkers) from AVIC International Beijing Company Ltd of China following an unsolicited proposal on December 23, 2013, for $ 35 million each, official documents revealed.

The CSC had borrowed $70 million from People's Bank at a floating rate of 6- month London Interbank Offered Rate plus 5.5 per cent to purchase the two vessels despite its market prices were around $40 to 50 million at that time, Mr. Bandara alleged adding that the financing arrangement was also unsatisfactory.

The CSC had borrowed $70 million from People's Bank at a floating rate of 6-month London Interbank Offered Rate plus 5.5 per cent to purchase the two vessels despite its market prices were around $40 to 50 million at that time, Mr. Bandara alleged adding that the financing arrangement was also unsatisfactory.