The country imports around 30 million barrels each year, which is largely consumed to fire expensive thermal power plants and the transport industry.
Last year, the government splashed out 26.1 billion rupees on fuel subsidies, over 14.7 billion reported in 2004, according to finance ministry data
The ministry says oil prices have now inched towards 70 dollars a barrel, due to continuing concerns over the geopolitical situation in major crude producers Iran and Nigeria.
"With the ever increasing oil prices, Sri Lanka's total oil import bill would be around 2.2 billion dollars," the ministry said. "This is a loss of foreign exchange which could be used to provide basic infrastructure."
The treasury now says subsidies are better spent to develop infrastructure such as electricity, highways, harbours and airports.
"This vast amount of resources would be equivalent to the total cost required to build the Colombo-Katunayake expressway or the Matara-Kataragama railway line."
Sri Lanka abandoned an automatic pricing formula in late 2003 amidst political instability.
The present ruling party was also elected on a platform to sell subsidized fuel.
But in April, the government hiked local fuel prices by 8.00 rupees across the board for the first time this year.
Petrol at the pump now costs Rs.88.00 rupees, diesel 58.00 rupees and kerosene 38.50 rupees.
"If the automatic price formula was in place, petrol prices would have gone up to 100.00 rupees, diesel to 69.00 rupees and kerosene to 67.00 rupees," the ministry said.
Kerosene prices have been traditionally kept low based on the premise that it is used by low income classes.
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