Cost-reflective fuel pricing formula yet to be finalised

The cost-reflective pricing formula for petroleum has not been finalised yet and presenting it to the Cabinet will be delayed until next week since the key personnel in the Finance Ministry are attending the International Monetary Fund (IMF) Spring Sessions in Washington DC.

“Unfortunately, for the past week, the ministers and higher officials from the Finance Ministry and Treasury were out of the country for official purposes. So, I think the formula has not been finalised. It would take another week,” Finance Ministry Information Director M. Ali Hassan said. He added that the Treasury is currently preparing the formula with the assistance of Ceylon Petroleum Corporation (CPC).

When attempts were made to contact Petroleum Resource Development Ministry Secretary Upali Marasinghe for further information, his Personal Assistant said that all queries regarding the pricing formula should be directed to the Treasury. However, he has been quoted as saying that CPC is losing Rs.266 million a week due to the lack of a cost-reflective pricing mechanism, since its competitor Lanka IOC PLC has increased the petroleum prices due to the rising prices of crude oil in the world market, which has resulted in more consumers pumping fuel from CPC establishments at subsidised rates.

Last month, Petroleum Resource Development Minister Arjuna Ranatunga expressed his opposition to the implementation of a pricing formula, stating that if the people get the benefit of low fuel prices, running CPC at a loss is justifiable.

He said that the time to implement a pricing formula has not yet arisen but that President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe must take a policy decision for the government.

As part of a US $ 1.5 billion loan for the balance of payments support, the government promised to implement cost-reflective pricing formulae for fuel and electricity.

However, the earlier target set for December 2016 was missed after the initiative languished in uncertainty and the IMF then revised the targets to March and September 2018, respectively.

Analysts are speculating that the government does not have the political space to raise the petroleum prices in the run-up to the election season next year, especially given the fact that cutting the fuel prices was a pledge the current government made to come into power.

Sri Lanka has not revised its fuel prices since January 2015. However, the IMF has now made Sri Lanka’s continued eligibility for a US $ 1.5 billion reform package dependent on the Cabinet passing a cost-reflective pricing mechanism for petroleum before this June. Not implementing the two formulae could place extreme stress on Sri Lanka’s finances, raising the possibility of a debt shock, in the run-up to a peak in Sri Lanka’s debt repayment cycle. (Chandeepa Wettasinghe)