Sri Lanka’s allocation of Rs. 57 billion for fuel subsidies is set to conclude by the end of June, prompting the recent hike in oil prices, according to D J A S De S Rajakaruna, Chairman of the Ceylon Petroleum Corporation (CPC). Despite this increase, Rajakaruna emphasized that current prices remain below the actual market cost, a situation temporarily accepted by the International Monetary Fund (IMF).
In a press briefing on Monday, Rajakaruna stated, “The government is currently absorbing a loss of 100 rupees for every litre of diesel purchased.” He noted that this financial burden was carried in April and May, and will continue into June. For petrol, the government is subsidizing 20 rupees per litre.
He explained that the total subsidy allocation of 57 billion rupees will be exhausted by the end of this month, leading to the government’s decision to incrementally adjust fuel prices while aiming to minimize economic repercussions.
In its recent Staff Report on Sri Lanka, the IMF highlighted that adhering to cost-recovery pricing for energy is vital for the country’s economic strategy. The report indicated that cost-recovery pricing has not been achieved since April, as the price adjustments have only partially accounted for increased costs stemming from the conflict in the Middle East.
The IMF also noted that the Sri Lankan authorities will compensate the CPC for past losses through a direct budget transfer, with a cabinet resolution guaranteeing that fuel subsidies will be limited and eliminated by the end of September 2026.
Additionally, the report pointed out that cost-recovery pricing for electricity has also faltered since January, as tariffs were not revised in light of rising costs. The average price increase of 10.9 percent approved for the second quarter does not fully reflect the higher fuel prices or the anticipated changes in energy generation sources. The regulator is expected to issue a new tariff adjustment to rectify this situation.
Rajakaruna revealed that the CPC incurred expenses exceeding US$ 520 million in May due to elevated global oil prices and increased import levels, which had previously ranged from US$ 100 to 120 million before the onset of the Middle Eastern conflict.
“If this trend continues, it will adversely affect the populace,” he cautioned, urging the public to minimize fuel consumption. He warned that if the current situation impacts the value of the dollar further, it will have repercussions not only on fuel prices but across the entire economy. “We need to manage this issue as a nation to avoid severe economic consequences,” he added.
He further clarified that the CPC is currently facing losses of Rs. 129 for each litre of diesel and Rs. 60 for petrol, with the government covering Rs. 20 for petrol and Rs. 100 for diesel. “This illustrates the underlying reasons for the recent increase in fuel prices, which is why we continuously urge the public to reduce fuel usage as much as possible,” Rajakaruna concluded.
