LIOC raises fuel prices, but CPC defers decision

Economic analysts say world prices have risen from US$ 55 to 70 a barrel, and the State cannot continue to incur huge losses

Lanka Indian Oil Company ( LIOC) increased petrol and diesel prices yesterday, citing heavy losses, but the Stateowned Ceylon Petroleum Corporation pledged to maintain prevailing rates despite dire warnings by economists that the continued fuel subsidy was plunging the country into a crisis.

The CPC was also incurring massive losses owing to subsidised fuel sales, Chairman Dammika Ranatunga told the

Sunday Times. But no decision has been taken yet to follow LIOC’s lead. Any change could come only after consultations with the Finance Ministry and political leadership.

“Unlike a private company, we, as a State institution, have to look at more than just the bottom line,” Mr Ranatunga said, adding that the CPC provided a “service” rather than working for profit. He also said there would not be a countrywide fuel shortage in CPC sheds following the LIOC’s price revision..

But analysts pointed out that keeping fuel prices at current levels was “unsustainable” and that the Government’s repeated failure to implement a cost-reflective fuel price formula was causing a crisis.

LIOC increased the price of 92 Octane petrol by Rs 9 a litre and the new price is

now Rs 126. The Auto Diesel price was raised by Rs 5 a litre and the new price is Rs. 100 from midnight on Friday. The company said 95 Octane Petrol and Lanka Super Diesel prices would remain the same.

An LIOC statement said the company had incurred heavy losses on petrol sales since January 2015 and diesel since September 2016. It placed the cumulative loss at around Rs 1.3bn.

Still, LIOC had increased prices by “the barest minimum”, the statement claimed. The LIOC said it would continue to incur losses till crude oil prices came down to around US$ 55 a barrel or selling prices were increased or taxes reduced.

The LIOC has also backed the introduction of a pricing formula that is in tandem with international rates. Domestic fuel prices have remained the same since January 2015 when in the world market a barrel of crude was sold at US$ 47. By January this year, a barrel was nearly US$ 70.

LIOC decided to raise prices after the Government failed to follow through on a commitment made last year to introduce a cost- reflective fuel price formula by March 2018. It was a condition the Government agreed to obtain a US$ 1.5bn loan from the International Monetary Fund ( IMF) to avert a balance of payments crisis. A similar mechanism was to have been introduced by September 2018 for electricity. This, too, seems unlikely.

There has been no move towards bringing in such a formula, Mr Ranatunga said. “If it is to be introduced, we would like to know the basis of it as we are the major stakeholders and many factors have to be considered first,” he explained. “There has so far been no detailed dialogue in this regard.”

But things will not improve if the Government dragged its feet on a pricing formula, one economic analyst said. While the CPC could afford to transfer its debts to the State, the Government would have to find the money from elsewhere to pay these off. The burden will inevitably be transferred onto the consumer and the taxpayer through direct or indirect taxes.

The CPC’s current debts to State banks stand at a staggering Rs 333 billion, yet the Government continues with generous fuel subsidies, the analyst said. When fuel is under-priced, the obvious consequence is that it is over-consumed. At the end of 2016, there were more than 6.8mn vehicles on the road, Government data show. The number continues to rise.

But consumers will gradually adjust if the Government implemented a pricing formula with gradual progression towards full implementation, another analyst said.

The CPC cannot afford to maintain fuel prices at current levels, according to Prof Ranjith Bandara of the Colombo University’s Department of Economics. “It will have an incremental impact on everything from trishaw charges to a cup of tea,” he said. Gas and transport costs are likely to rise. This will be devastating for consumers, he warned.

The CPC would find it difficult to continue selling fuel at prices lower than LIOC, Prof Bandara said. “The Government has to pay the salaries of some 1.4 million state employees,” he pointed out. “It’s the festival season next month. Bonuses and salary advances have to be paid.” Taxes will have to rise further if prices do not change and the State continues to absorb colossal losses.

The prices at CPC filling stations are: Petrol 92 Octane-Rs.117; Petrol 95 Octane-Rs 128; Auto Diesel-Rs. 95; Super Diesel-Rs.110; and Kerosene-Rs. 44.