Power and energy firms hail proposed fuel formula

The highly anticipated fuel formula, if implemented as planned, is expected to be beneficial to power and energy companies, the country’s private power sector operators said. 

“It will be good for us. Even now there’s a formula. The government will decrease prices if the international prices are down, but they won’t let us increase prices when the prices increase,” Laugfs Holdings Chairman W. H. K. Wegapitiya said. Last month, crude prices hit US$ 29 a barrel, the lowest since 2004. However,

the local fuel prices were last decreased in January 2015 as an election promise, when the oil barrel was trading at around US$ 47. However, international crude oil prices picked up until the latter part of 2015. “Under the current formula last year, prices were reduced drastically, but at that time the crude prices were high,” Lanka IOC PLC Managing Director Shyam Bohra said. He noted that oil and LP gas companies in Sri Lanka had made huge losses for the last year due to action.

Lanka IOC had posted a Rs.373.28 million loss for the 2nd quarter ended September, as opposed to a Rs.1.13 billion profit year-on-year. The highly anticipated formula has until now been seen as beneficial to consumers, since the government had not reduced local fuel prices since August 2015 to match global levels.However, it could be a double-edged sword, since the government will not be able to protect customers in the free-market model.

“The fuelling formula is good not only for consumers but for us as well. So whenever changes are going to take place internationally, they will change here at the same time,” Lanka IOC PLC Managing Director Shyam Bohra said. The power companies are also likely to face a scenario of win some-lose some, since Bohra pointed out that there is about a 2 month lag in signing contracts at old prices, and selling the stocks in Sri Lanka. Governments and consumers in Sri Lanka in the past have proven hostile towards businesses selling old stocks at old prices.