Sri Lanka’s fuel price hike stirs controversy

State-owned Ceylon Petroleum Corporation (CPC) will gain billions of rupees in profits, despite assertions that it was losing money, from the sale of fuel at the new prices, however amidst owing billions of rupees to state banks from borrowings, the Business Times (BT) learns.

With this increase the CPC is expected to increase its earnings/profits from daily sales by Rs. 130 million by selling 446,700 litres of Petrol 92, 394,200 litres of Petrol 95, 6,578,000 litres of Auto Diesel, 239,200 litres of Super Diesel and 788,400 litres of Kerosene oil per day, provisional estimates revealed.

The CPC owes Rs. 652 billion in loans to state-owned Bank of Ceylon and the People’s Bank.

The role of the Energy Minister Udaya Gammapila in announcing the price hike and himself issuing a gazette notification dated June 11 on the new prices has stirred controversy as it is the Minister of Finance who issues such a gazette under normal, established practice.

The government was prompted to introduce the fuel price hike following trends of crude oil price in international markets that hit new highs for the third week and the country’s current weak foreign exchange position,

Petrol 92 Octane price was increased by Rs.20 to Rs.157, Petrol 95 Octane by Rs.23 to Rs.184, Auto Diesel by Rs.7 to Rs.111, Super Diesel by Rs.12 to Rs.144 and Kerosene oil by Rs.7 to Rs.77.

Minister Gammanpila, at a media briefing last week, attributed the reason to the hike to heavy losses incurred by the CPC in selling fuel to state institutions like Ceylon Electricity Board and the Sri Lankan Airlines at subsidised prices and its delay in due payments. However the BT learns that the CPC will rake in profits with the new increase.

According to official data, the cost of importing a litre of Petrol 92 at the rate of US$ 76 per barrel and exchange rate Rs. 200 per dollar is Rs.95 while its total tax (import duty+ ESC +PAL) is Rs. 39. Therefore the difference between the imported price and selling price (Rs.157- Rs. 134) is Rs.23.

Similarly the import cost of a litre of Petrol 95 is Rs. 94.30. The total tax component (import duty+ ESC +PAL) is Rs.60 and the difference between the imported price and selling price (Rs.184-Rs.154.30) is Rs.29.70.

The cost of a litre of Auto Diesel is Rs. 91. The tax component is Rs.12.90 and the difference between the imported price and selling price (Rs. 111 – Rs.103.90) is Rs. 7.10.

The cost of a litre of Super Diesel is Rs. 94.30. The tax component is Rs.20 and the difference between the imported price and selling price ( Rs. 144- Rs. 114.30) is Rs. 29.70.

Commenting on the price hike, a respected veteran public servant and a former Treasury secretary, who wished to remain anonymous, told the Business Times that the sole authority of the price determination and announcement of its revision is vested in the Finance Ministry as the fiscal authority of the country. In this case, the announcement was made by the Minister Gammanpila contrary to normal practice. The Energy Minister is facing his own share of problems with sections of the ruling Sri Lanka Podujana Peramuna not in favour of the price hike while the opposition was proposing a vote of no confidence against him in Parliament.

In this case, the announcement was made by the Minister Gammanpila contrary to normal practice.

The normal procedure was that the price revision of fuel is announced by issuing a gazette notification by the Finance Ministry with effect from midnight on the date of the notification of revised prices.

But at the time of this announcement of the Energy Minister there was no gazette notification issued by the Treasury and this was an over-stepping of the administrative procedures and it has created a negative precedent, he said. Instead a gazette notice was issued by Minister Gammanpila.

The determination of the retail fuel price is a very complex mathematical procedure involving various variables such as the landed cost, processing cost, administrative cost and taxation.

Vaporisation loss, exchange rate, processing cost consisted of port charges, transport costs and dealer delivery price and stock retention charges etc, finance cost of working capital, salaries and allowances of workers, wholesale cost, storage terminal cost etc also have to be taken into consideration.

Therefore this complex procedure of fuel price determination has been vested in Treasury officials with knowledge and practical experience, he disclosed.

Asked to comment on this matter, former petroleum minister Chandima Weerakkody also acknowledged 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.

But he pointed out that the Energy Minister who was a cabinet spokesman and who attended Cost of Living committee meetings for this purpose may have received instructions to announce the decision beforehand.

He agreed that this was not the opportune moment to increase the price of fuel and it is ill- timed during the COVID-19 pandemic.

State Minister of Finance Ajith Nivard Cabraal pointed out that Minister Gammanpila made the announcement as one of the media spokesmen who attended cabinet subcommittee meetings chaired by the Prime Minister and Cost of Living committee meeting presided over by the President.

All those committees have endorsed the decision to revise fuel prices after 21 months, he told the BT adding the relevant gazette notification relating to fuel price hike has already been issued by the Finance Ministry. Minister Cabraal was however unaware that it was Minister Gammanpila who has issued the gazette.