Sri Lanka's Air Force members distribute tokens to people queueing for fuel due to fuel shortage, amid the country's economic crisis, in Colombo, Sri Lanka June 27, 2022.
Sri Lanka's Air Force members distribute tokens to people queueing for fuel due to fuel shortage, amid the country's economic crisis, in Colombo, Sri Lanka June 27, 2022. Reuters / DINUKA LIYANAWATTE

Sri Lanka will allow companies from oil-producing countries to import and sell fuel, the power and energy minister said on Tuesday, ending a duopoly as it tries to overcome a shortage of petrol and diesel that is exacerbating an economic crisis.

The Cabinet decision came as the minister, Kanchana Wijesekera, headed to Qatar and a colleague was due to arrive in Russia on Sunday for talks on energy deals with officials there.

Sri Lanka is suffering its worst economic crisis since its independence, with foreign exchange reserves at a record low of $1.92 billion, according to the Central Bank, though analysts estimate a lower level of useable funds.

The island of 22 million people is struggling to pay for essential imports of food, medicine and, most critically, fuel.

The government closed urban schools for about two weeks from Tuesday and allowed fuel supplies only to services deemed essential like health, trains and buses as stocks would only last only a week or so based on regular demand.

"Cabinet approval was granted to open up the fuel import and retail sales market to companies from oil-producing nations," Wijesekera said on Twitter.

"They will be selected on the ability to import fuel and operate without forex requirements from the CBSL (central bank) and banks for the first few months of operations."

The state-run Ceylon Petroleum Corporation (CPC) controls about 80% of the fuel market and Lanka IOC, a unit of Indian Oil Corporation, the rest.

The Cabinet also allowed bunkering companies already registered with the government to import jet fuel.

Sri Lanka needs about 1.2 million litres of so-called A1 jet fuel a day to supply airlines but the CPC has been unable to meet the requirement, the government said in a statement.

"The Cabinet made this decision to ensure that flights are not disrupted due to the fuel shortage," it said.

Wijesekera flew to Qatar late on Monday night while Education Minister Susil Premajayanth is due to arrive in Russia on July 3.

Wijesekera hopes to find a long-term fuel supplier in Qatar who is "willing to work with Sri Lanka's foreign exchange and other challenges", said a ministry official, who declined to be identified as he is not authorised to speak to media.

Wijesekera told reporters on Sunday Sri Lanka had been in talks with various countries, including Russia, for weeks on buying fuel.

Traffic was light on Tuesday on the streets of the main city of Colombo, with city schools shut and most public and private sector employees working from home.

But buses and trains were running and shops were open for groceries and other essentials.