Jet fuel issue far from being solved; suppliers demand LCs confirmed by international banks

Sri Lanka’s jet fuel crisis is still weeks away from a solution despite the Government inviting private sector bunkering companies to import and supply the country’s airports.

While the bunkering industry is “trying hard” to procure jet fuel, suppliers demand letters of credit confirmed by first- class international banks. These are not forthcoming, owing to Sri Lanka’s abysmal credit ratings.

This is an impediment the bunkering sector is working with suppliers to overcome, an authoritative source said. Among other things, they are looking at “other mechanisms” through which jet fuel can be procured for Sri Lanka.

“The fact that we can’t open letters of credit is the biggest problem,” this source, who is from the bunkering sector, said. “Otherwise, this would’ve been solved faster.”

As jet fuel ran out, the Civil Aviation Authority of Sri Lanka ( CAAS) issued a “Notice to Airmen” (NOTAM) on the night of June 26, advising pilots that local airports cannot accommodate requests for refuelling by nonscheduled aircraft.

This means Sri Lanka could also lose dollar income from overflight charges, which are fees that foreign airlines pay for use of airspace. While the country has suitable and adequate airports to allow emergency landings, it is unlikely pilots will pick routes with stops that cannot provide fuel, aviation experts said.

The fact that we can’t open letters of credit is the biggest problem,” this source, who is from the bunkering sector, said.

The NOTAM advised scheduled aircraft operating to all airports in Sri Lanka “to strictly adhere to the requirement of carrying return sector fuel”. This does not apply to diplomatic, humanitarian and emergency aircraft intending to operate to Sri Lankan airports.

Bunkering is the supply of fuel ( called bunker) for use by ships. While around nine companies hold licences, only four are active, importing fuel oil and diesel for marine vessels.

Since March-April, the sector has been selling diesel to exporters, power generation companies, hotels registered with the Sri Lanka Tourism Development Authority (SLTDA) and the telecommunication sector at Government request. Payments are claimed in dollars.

“This was one condition because if we collect in rupees, we cannot import,” the source said. “From the country’s perspective, this is good because the dollars get used for their energy requirements rather than being held in banks.”

Now the companies have been called upon to sell aviation fuel but different dynamics apply. Most of them have existing credit limits with their longtime banks (many of which were slashed after the sovereign credit ratings dropped) but are not being offered additional credit. It was with the existing facilities that bunker is imported and diesel supplied to other sectors.

Although airlines will pay in dollars for their fuel, the companies still need to import the cargo for which they have to open LCs locally. “You need massive credit limits to bring this fuel,” the source said. “And they want confirmed LCs because they cannot be sure that the money can be transferred out on the due date. We were not asked for confirmed LCs before March.”

“There is no clear solution at the moment,” he pointed out. “And even if we have everything lined up and loaded, it will still take time to reach Sri Lanka from Singapore or Dubai.”

Energy Minister Kanchana Wijesekera also recently said that sellers were not willing to accept LCs even from the largest State-owned local banks.

The aviation sector is severely hit with flights pruning frequencies and prices set to rise higher. Planes need to carry double sector fuel, which means their payload (passenger and cargo) will reduce. Longhaul flights will, in particular, be less financially viable. Technical landings and charter flights will all reconsider.

“Airlines will start using other airports,” an official source warned. “When they get established there and are used to it, the competitiveness of Sri Lanka’s airports will also reduce. The Government must secure aviation fuel at any cost.”

Thai Smile Airways, a subsidiary of Thai Airways, that started direct flights between Colombo and Bangkok just four months ago, announced this week that it was compelled to cancel the sector from June 30, 2022 “owing to the country situation in Sri Lanka”. The tentative date of resumption is October 31 this year.

Meanwhile, SriLankan Airlines, which has been refuelling in Chennai and Trivandrum, announced fare revisions on the London, Paris and Frankfurt sectors.