Fuel price hike without formula or stabilisation fund sparks mayhem

Losses at the fuel stabilisation fund set up on March 30, 2020 by the Treasury to alleviate government finances when prices rise or fall in the world oil market, has raised many questions, official sources said.

This fund was established with an initial capital of Rs. 50 billion by issuing Treasury bills to the Central Bank, Finance Ministry documents revealed.

The fund was partly utilised to settle the dues of the Ceylon Electricity Board (CEB) to the Ceylon Petroleum Corporation (CPC) during 2020. At least Rs. 48 billion was given to the CEB which in turn had repaid the CPC with the money. However continuing losses at the CEB and CPC resulted in the two institutions requiring more money from this fund which led to the Treasury pumping in more money. This led to the account of the Fund being a negative Rs. 26.67 billion by end December 2020.

Sources said that more money was given to the CPC in anticipation that this money would be recovered from the sale of its products but that never happened. The untimely end of the fuel pricing formula and fuel stabilisation fund introduced with good intentions to pass the benefits of international oil price fluctuations to the people has resulted in unrecoverable loss to the country at present, economic analysts said.

According to the widely debated fuel price formula introduced by the previous Government, fuel prices were supposed to be revised on the 10th of each month and a number of factors in addition to global oil prices were taken into consideration when formulating the formula.

However the Government headed by President Gotabaya Rajapaksa discontinued these two systems.

Earlier the normal procedure was that the price revision of fuel is determined and announced in a gazette notification by the Finance Ministry with effect from midnight on the date of the notification of revised prices. The price hike of the present regime has not followed this procedure on two occasions this year.

When asked to comment on this matter, former petroleum minister and MP Chandima Weerakkody noted that the Finance Ministry is the sole authority in the determination and announcement of the revision of fuel price as and when necessary according to the CPC Act.

The new Minister of Power and Energy Kanchana Wijesekera told parliament on Thursday that the decision to increase prices was taken after discussion with relevant ministry and CPC officials and with the consent of the President. He added that he contacted the Finance Minister over the phone and obtained his approval as well.