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Asian Tribune is published by World Institute For Asian Studies|Powered by WIAS Vol. 12 No. 2583

Another fuel price hike expected in Sri Lanka

By Ashwin Hemmathagama - Asian Tribune Financial Correspondent

Colombo, 28 May, (Asiantribune.com): Ceylon Petroleum Corporation (Ceypetco); state owned petroleum giant has recently recommended an increase of retail fuel prices to be inline with the international oil prices.

Ceypetco Chairman Jaliya Medagama explaining the possible price hike told the Asian Tribune: “These price increases are recommended according to pricing formula. During the month of April our petrol refining cost was Rs. 100/- per liter which was sold at Rs. 88/-. Diesel refining cost was Rs. 69/- where it was sold at Rs. 58/-. This gives a clear-cut loss for the government. Kerosene, mainly used by factories, is to nearly double to around Rs. 67 per liter from the current Rs. 38 per liter.”

Currently Sri Lanka imports 70 per cent of its oil requirement from Iran, 19 per cent from Malaysia and 11 per cent from Saudi Arabia at an average rate of US $ 65 per barrel.

In April, the government raised local fuel prices for the first time this year, leading to a 16 per cent rise in the cost of diesel, used mostly for public transport and industry. According to sources, the country's oil import bill hit US $ 1.6 billion in 2005 when crude oil prices averaged US $ 53 a barrel, up from an annual average of about US $ 800 million in the past few years.

According to Central Bank of Sri Lanka the domestic petroleum sector was seriously affected by the historically high oil prices in 2005. Expenditure on petroleum imports has increased by 37 per cent to US $ 1,655 million in 2005 driven by an equal increase in prices. Domestic petroleum prices were not adjusted monthly as per the pricing formula, but some adjustments were made in May and June 2005 rising petrol, diesel and kerosene prices by 8 per cent, 19 per cent and 20 per cent, respectively.

The delayed and inadequate adjustments in prices have caused a significant financial strain on petroleum distributing companies, the CPC and Lanka IOC, compelling them to claim subsidies amounting to Rs. 26 billion (about 1 per cent of GDP) in 2005 from the Government. To limit its impact on the general price level, the government removed the 15 per cent VAT on diesel with effect from August 2005.

- Asian Tribune -

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