India is extending a $150 million loan to Sri Lanka, even though the island nation continues to owe $30 million to government-owned Indian Oil Corp (IOC).The five-year loan is being given from Exim Bank of India to Sri Lanka for import of petroleum products from any of the government-run Indian oil firms. It would carry an interest rate of LIBOR plus 75 basis points.However, Exim Bank wants a corporate guarantee to back any possible default for the loan to become a reality. Last week, the Petroleum Ministry asked IOC and Bharat Petroleum (BPCL) to convey whether they would be willing to provide the guarantee.Sources said IOC had decided to steer clear from providing the cushion as it did not want to take on more burden since the Sri Lankan government owed it $30 million for not allowing its subsidiary Lanka IOC to raise prices of petrol and diesel.IOC’s second concern is the island nation’s financial crunch. Sri Lanka has about $1.3 billion of forex reserves and is one of the few countries whose currency depreciated against the dollar even when others witnessed a climb. Its foreign exchange exposure has increased with a similar loan from Iran for purchase of crude oil.Moreover, the agreement between both nations would not link IOC’s outstanding to the loan but merely advise Colombo that the payment to IOC be expedited. Earlier, IOC wanted to push ahead with term exports to Ceylon Petroleum Corp once the soft loan from India was extended to Sri Lanka.
