Sri Lanka to introduce fuel pricing formula soon

Sri Lanka will be introducing a cost reflective transparent pricing formula, based on international market prices soon, Minister of Power and Energy Patali Champika Ranawaka told the Business Times.

With this formula, consumers would be privy to the breakdown of various cost components such as cost of product in the international market, freight and insurance costs, government taxes and marketing margin.

The energy utility marketing establishments like the Petroleum Corporation and Electricity Board would not be able to hide their inefficiencies in the future as every action and activity will be scrutinised by an independent regulatory body, he said adding that no longer will those institutions be able to pass unreasonable costs to the consumer.

The government must take appropriate action so as not to give undue burden to the consumer with inflated costs. The utility must also generate sufficient revenue for investment in developing infrastructure such as refineries, storage facilities and pipeline systems, he added.

A transparent cost reflective pricing mechanism would benefit both the consumer and the utility, he said.

Sri Lanka cannot subsidize power and petroleum with bank credit, pushing the country into a balance of payments crisis which resulted in the falling of rupee, he emphasised.

In the last few years the Sri Lankan petroleum sector was also pushed into crisis due to state price controls, and the petroleum agency had been bailed out with Treasury bonds. The issuing of Treasury bonds however increases the national debt burden on every citizen, he opined.

But an automatic fuel adjustment formula immediately cuts the disposal income of oil users reducing their ability to import consumer goods, keeping the external sector balanced with domestic demand, he explained.

Welcoming the government’s move Managing Director of Lanka Indian Oil Company (LIOC) Subodh Dakwale noted that "the formula should be such that it provides reasonable margins to the oil companies to invest in energy-related infrastructure, including storage and efficient distribution of petro- leum products."

He told the Business Times that the LIOC is losing Rs.20 per litre of petrol by selling it at the current fixed price of the government. The company will not be able do so any longer as the oil price in the world market is always fluctuating.

"It would help everyone if the Government could evolve a longterm pricing formula which will provide for adjustment of duties and levies and revision in prices from time to time based on the world market prices, with provisions to protect consumers wherever required,” he said.