US sanctions on Iran affecting LCs of tea exporters

Thursday, 19 May 2011 00:41 - - {{hitsCtrl.values.hits}}

By Cheranka Mendis

Tea industry has begun to experience the effects of US sanctions on Iran with banks being circumspect in terms of accepting Letters of Credit (LCs).

Following concerns raised by exporters the Central Bank is expected to discuss the issue with commercial banks, especially stated owned to find redress.

Iran is Sri Lanka’s fourth biggest market for tea exports with last two years’ shipments amounting to over 28 million kilos worth Rs. 14.8 and Rs. 15.6 billion. Purchase by Iran in the first quarter of 2011 ranked second biggest with 8.15 million kilos, up by 36% over the corresponding period of last year.

Chairman of Sri Lanka Tea Exporters’ Association Jayantha Keragala speaking to Daily FT stated that even though the sanction issue had been going on for some time now, the situation was getting more intense.

“Commercial banks are reluctant in negotiating letters of credit from Iran. We brought this to the notice of the CBSL and they are now looking into it. They are set to meet the State banks to offer a solution to the problem on Thursday or Friday,” Keragala added.

Tea Board Director Promotion Hasitha De Alwis, said: “There is a delay in banks accepting the documents. We are told that the CBSL is now looking into it and we are also checking through our sources.”

De Alwis said that the sanctions clearly state that food items are not included in its legislation. “Therefore, this is not something to be cautious about. Our banks do not have much exposure and are only being extra guarded.”

The weekly tea auction in Colombo which was a one day sale due to the Vesak holidays took place on Monday where the high growns ended lower once again. The lower section of tea attracted more demand at the auction, which was a positive sign for the market. Low growns were on sale at a reasonable price with Pekoes moving up in value.