By: Staff Writer
October 27, Colombo (LNW): Sri Lanka’s petroleum pricing dispute is developing into a wider public-finance and financial-sector concern, with reported losses at the Ceylon Petroleum Corporation (CPC), emergency government assistance and growing dependence on bank credit raising questions about the sustainability of the country’s fuel policy.
The immediate pressure arises from the Government’s decision to maintain selected retail prices below the indicative cost-recovery level while international petroleum prices remain volatile. Although this approach may provide temporary relief to motorists and businesses, the financial burden does not disappear when the price at the pump fails to cover the cost of supplying fuel. It must instead be absorbed by the petroleum corporation, financed through public funds or transferred through outstanding liabilities to creditors.
The figures supplied with the petroleum pricing analysis indicate that the CPC is selling Octane 95 petrol at Rs. 475 per litre against a formula benchmark of Rs. 477.46. This represents a difference of Rs. 2.46 per litre. More alarming are the reported losses of approximately Rs. 35 per litre on regular Octane 92 petrol and Rs. 367 per litre on auto diesel.
These figures require urgent clarification from the CPC and the Ministry of Finance. A price gap against an indicative formula does not necessarily equal the final realised loss on every litre sold. Actual results depend on procurement contracts, stock valuations, taxes, freight, financing costs and other operating expenses. Nevertheless, if the reported diesel deficit reflects the corporation’s actual sales economics, its magnitude would demand immediate independent scrutiny.
The document further claims that CPC import purchases have sometimes exceeded Singapore Platts benchmarks by as much as 40%. It cites instances in which regional prices were around US$190 per barrel while particular shipments allegedly cost as much as US$268. Such a discrepancy, if established on a like-for-like basis, could point to serious procurement inefficiencies or expensive supplier premiums.
But international benchmark prices cannot be compared directly with every delivered shipment without accounting for product specifications, shipment dates, freight, insurance, financing, contractual premiums and other costs. The relevant question is whether the CPC obtained competitive prices under transparent procurement procedures and whether any avoidable expenditure increased the burden on consumers and taxpayers.
The banking exposure is equally important. According to the document, the CPC relies on letters of credit and expanded credit facilities from State-owned institutions, including the Bank of Ceylon and People’s Bank, to finance fuel imports. If operating losses persist while retail prices remain insufficient to recover costs, the corporation may require further borrowing, government guarantees or capital injections.
That possibility creates a public-finance risk. State banks must assess whether lending to the CPC is adequately secured and whether the corporation can service its obligations. However, the existence of credit facilities alone does not establish that the banking system is on the verge of collapse. The extent of exposure, repayment performance, guarantees and capital adequacy must be examined before drawing such a conclusion.
The reported exhaustion of a Rs. 57 billion price-stabilisation cushion compounds the concern. The Government must explain whether this amount represents a dedicated fund, accumulated reserves or another financing arrangement, and disclose how the reported Rs. 71.7 billion relief package is being financed.
The International Monetary Fund’s cost-recovery framework also makes prolonged price suppression a matter of policy credibility. Any departure from automatic pricing should be transparent, time-bound and supported by a clearly identified funding mechanism. Otherwise, apparent relief at the pump can conceal mounting liabilities elsewhere in the public sector.
A comprehensive independent audit should examine fuel procurement, pricing calculations, subsidy allocations, CPC accounts and exposure through State banks. Its findings should be published, with corrective action taken wherever irregularities or avoidable costs are established.
Sri Lanka cannot achieve lasting energy security by shifting fuel costs between consumers, the Treasury and State banks without accounting for the consequences. The public deserves affordable fuel, but it also deserves proof that the policy protecting it today will not create a larger financial burden tomorrow.
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