Power generation woes to intensify SL’S trade deficit worries

„Provisional figures show January imports increasing 13.2%, exports declining 1.1% „“Widening of the trade deficit observed in January as well”Central Bank „SL’S import expenditure on refined petroleum set to go up this year amid drought

Sri Lanka’s trouble with its trade account is set to continue for the foreseeable future as the provisional data released for this year have indicated a further widening of the country’s trade deficit due to current power generation largely depending on petroleum imports.

Making matters worse, Sri Lanka seems to have run out of options to reverse the trend.

Sri Lanka ended 2016 with a ballooned trade deficit of US $ 9.1 billion compared to a deficit of US $ 8.4 billion in 2015 as a result of the expenditure on imports increasing by 2.5 percent with the earnings from exports contracting by 2.2 percent.

“A widening of the trade deficit was observed in January as well,” Acting Director of Economic Research at the Central Bank, Dr. C. Amarasekara, told reporters in Colombo, recently.

Although he did not elaborate on the absolute expenditure and import numbers for January, the provisional figures showed the expenditure on imports increasing by a significant 13.2 percent while the export earnings contracting by 1.1 percent.

According to Dr. Indrajit Coomaraswamy, Sri Lanka has imported a larger amount of refined petroleum products during the month of January 2017, specially for power generation due to the prevailing drought conditions.

The year 2016 saw a lower contribution from hydropower to Sri Lanka’s power generation mix in a decade.

The power sector regulator Public Utilities Commission of Sri Lanka (PUCSL) has only approved the diesel power plants out of the Ceylon Electricity Board’s (CEB) long term power generation expansion plan for 2015- out of which thirty four are most likely to demand more fuel for running.

Sri Lanka has no choice but to import petroleum in refined form because the country’s only refinery in Sapugaskanda has serious capacity issues.

Sapugaskanda Oil Refinery Expansion Project’s attempt to increase the refinery’s capacity up to 125, 000 barrels a day from the current less than 50,000 has been in limbo for close to a decade due to a multitude of reasons.

According to Central Bank data, crude oil only accounts for less than 40 percent of the total oil imports to Sri Lanka.

According to 2015 data, Sri Lanka’s total energy market is estimated at Rs. 811 billion out of which oil accounts for Rs. 499 billion.

Sri Lanka in 2016 spent US $ 2.3 billion for crude oil and refined petroleum imports, slightly down from US $ 2.5 billion in 2015 mainly due to record low global oil prices.

However, the global crude oil prices are expected to remain elevated as the OPEC members recently decided to remain committed to the production cuts earlier agreed upon up to June. Analysts say these production cuts are likely to be extended beyond June.

It was only a week ago the Central Bank Governor said the Sri Lankan economy operated with an extremely thin margin and therefore is highly susceptible to economic hardships in case of an oil price hike or similar kind of shock.