Sri Lanka has kept pump prices below the rapidly rising international cost of fuel. Now something has to give. Private suppliers say they are losing as much as Rs 163 a litre on diesel, CPC says it too is losing around Rs 60, and the Government is considering three choices: subsidise it, change the pricing rules – or make motorists pay more.
There is an uncomfortable arithmetic problem developing at Sri Lanka’s filling stations.
International oil prices have risen sharply amid continuing turmoil in the Middle East and disruption to energy markets, while Sri Lanka has so far avoided passing the full increase on to motorists.
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The three private fuel suppliers – Lanka IOC, Sinopec and RM Parks – have told the authorities that selling diesel at present prices is producing substantial losses. Figures reported this week put the estimated loss at Rs 141 per litre for Lanka IOC, Rs 160 for RM Parks and Rs 163 for Sinopec.
Some private suppliers have consequently been restricting the quantities of diesel delivered to their dealer networks. That has produced shortages at some privately operated filling stations, although the Government and Ceylon Petroleum Corporation maintain that Sri Lanka does not face a national shortage of diesel.
CPC itself is not immune. Its Chairman D.J. Rajakaruna says the State corporation is currently making no loss on petrol but is losing approximately Rs 60 on every litre of diesel it sells.
The Government is looking at three rather different solutions. The first is a return to a Government subsidy. That protects the motorist from the full international price shock, but somebody still pays. A subsidy transfers the cost from the fuel pump to the Treasury – which ultimately means the taxpayer.
The second possibility is establishing upper and lower fuel-price limits, within which different suppliers could determine their own selling prices. That could introduce genuine price competition, but competition works only when companies are actually capable of competing.
Which brings us to option three: increase the pump price. The Energy Minister has acknowledged that a fuel-price revision could come at the end of September after the Government assesses international prices and the Middle East situation.
A substantial diesel increase reaches considerably further than the petrol station. Diesel moves buses, lorries, agricultural machinery and construction equipment. It can become a transport increase, a food increase, a construction increase and eventually another addition to the cost of living.
There are no painless choices here. The Government can make the motorist pay at the pump. It can make the taxpayer pay through a subsidy. Or it can redesign the market and allow different suppliers greater freedom to set prices. What it cannot do indefinitely is pretend that the difference between the international cost of fuel and the price at which it is sold in Sri Lanka belongs to nobody. Sooner or later, someone receives the bill.
