Guarantee Game

Nov 12, 2007 (LBO) – Loan guarantees given by the Sri Lanka government to financial institutions shot up 45 percent in 2007 as the state took over credit risks of large power projects, newly published documents have revealed. Disclosures under Sri Lanka’s fiscal responsibility law shows that total loan guarantees given to financial institutions are now about one percent of the gross domestic product (GDP) at 37 billion rupees.

This indicates that Sri Lanka’s actual public debt that the government is responsible for is higher than the quoted figure of 90 percent of GDP.

The biggest guarantee was given to HSBC Bank for 8.895.4 billion rupees in relation to West Coast Power (Pvt) Ltd, an independent power producer that is building a combined cycle plant in Kerawalapitiya.

Another two guarantees, of 1.333 billion each was given to Lakdhanavi Ltd in relation to financing from the National Savings Bank and the Employees Trust Fund Board, bringing the total issued through 2007 to 11.5 billion rupees.

All three power firms are affiliated to the state through Lanka Transformers, though there are also private investors.

Energy analysts however say the power group however has given very competitive prices for