SL sees faster growth in petrol sales compared to diesel

Sri Lanka’s petrol sales have risen at a considerable pace during last year, outpacing the increase in demand for diesel as the country saw a massive influx of vehicles as the coalition government slashed taxes, cut interest rates and gave a massive salary increase to the public sector employees to prop up consumption.

According to a study carried out by J.B. Securities, a Colombo-based stockbroker, during the 12 months to June 2016, the sales of petrol had been growing by 20 percent to 25 percent on a year-on-year (YOY) basis.

This is more than twice the rate at which the demand for diesel – which grew just 10 percent YOY.

“The massive growth in the vehicle fleet last year and cheaper fuel prices since January 2015 coupled with higher wages, especially amongst the public sector workers, explains this growth,” said J.B. Securities Managing Director Murtaza Jafferjee.

Vehicle imports spiked to 658,241 units last year recording the highest annual figure in the history. During the first seven months of 2016, further 267,025 vehicles were imported despite the toughened conditions for vehicle imports.

The myopic policies of successive governments over decades have seen the public transportation being neglected and falling into deplorable conditions forcing the people to look for their own solutions for their daily commute. The country could get away with this massive number of vehicles as the global crude prices fell significantly but any rebound in the prices could push the country’s external sector into danger.

Meanwhile, the consumption mix between the two types of fuel also changed during the last decade with petrol’s share significantly rising. According to Jafferjee, the country’s transportation fleet consumes around 130 million litres of petrol and 200 million litres of diesel a month – a ratio of around 38 percent for petrol and 62 percent for diesel.

However, the ratio was 23 percent to 77 percent a decade ago.

During this period, the petrol sales have grown by a massive 120 percent, while the diesel sales have grown by 20 percent.

“This can be easily explained by the huge growth in two-wheelers, three-wheelers and small cars,” he said.

Meanwhile, he attributed the considerable spike in diesel during February and March 2016 to the use of thermal power generation as the country experienced two back-toback blackouts during this period. The conventional wisdom is that diesel should be priced lower since it is considered the poor man’s fuel as vehicles with diesel engines are used in public transportation and goods transportation.

“Diesel was taxed lower hence it could be offered at a cheaper price and petrol was taxed higher since it was perceived as the fuel of the higher income groups.

This is no longer true since around 70 percent of households have some form of personal transportation – mainly two-wheelers and three-wheelers. The ex-refinery price of diesel relative to petrol is higher, further since a majority of diesel consumption is not the super variety coupled with old engine technology in buses and trucks it is more pollutive justifying higher corrective taxes,” Jafferjee explained.