Sri Lanka hikes fuel prices, diesel petrol gap widens

The standard 90-Octane petrol will now cost 137 rupees at the pump and the premium 95-Octane 155 rupees. Auto diesel will cost only 84 rupees and kerosene 73 rupees.

Analysts say price hikes will help reduce pressure on an exchange rate peg with the US dollar and match re-balance domestic demand.

Petrol is now and 63 percent more expensive than diesel, despite costing less to import than diesel.

Refined diesel is traded at a higher price internationally as the fuel contains more energy and is also retailed slightly higher than petrol in other countries. Kerosene is traded at an even higher price. Jet fuel is also similar to kerosene.

The Singapore wholesale refined price for petrol was around 81.88 rupees a litre last Friday according to Central Bank data when an exchange rate of 110.10 rupees was used. Diesel was 86.76 and kerosene 87.68 rupees.

Diesel is used by business and rich people who own luxury jeeps and pick-up trucks. Petrol is used by small car owners, motorcycles and three wheelers.

Diesel is cross-subsidized by the exorbitant prices charged from petrol users. There has been little citizen action to end the discrimination so far.

Sri Lanka does not have a cost-based formula which is fair to all citizens to raise fuel prices. Pump prices are arbitrarily raised by rulers on an ad hoc basis. There is also a belief among rulers that inflation is not a monetary phenomenon but is diesel-driven.

Delays in raising imported fuel prices cause losses in petroleum distributors which have to be financed by bank credit, pushing up aggregate demand and pressuring Sri Lanka's soft dollar peg with the US dollar and increasing inflation.

Raising fuel prices will help reduce pressure on the peg, it if reduces credit expansion and also extinguish demand. A monthly price formula will helps domestic demand adjust faster to external development and help maintain the exchange rate and inflationary pressure.

However Sri Lanka is yet to raise power prices. The state-run Ceylon Electricity Board is running large losses, the power minister has said.

There is a less arbitrary mechanism for raising power prices through a regulator, though politicians can still interfere and cause imbalances.

READER COMMENT(S)

5. Andare Oct 31

@EXPAT: Diesel can be more environment friendly than Petrol. Raead:
http://www.enn.com/energy/article/39227
http://www.slate.com/articles/health_and_science
/the_green_lantern/2008/04/will_diesel_save_the_world.html

We will not be able to do the same as Japan or Middle East, since we do not produce Cars nor we have Oil reserves. We have to strike a balance, and I think government is trying it.

In my opinion, the best way to curb the Fuel costs is to have efficient public transportation system which will reduce the usage of cars and promote shared transportation (Like in any developed country, including Japan).

4. Pissa Oct 31

Nothing to worry people. We have found oil deposits in SL. Soon we can stop importing oil, and a liter would go for 10 bucks each!

3. EXPAT Oct 31

LOL
sometime back a comment on this site was wondering why so many people go abroad and the government must try to get them back to develop the country. Well here is one reason. The rulers and their cohorts get tax free vehicles and then low taxed deisel also to run those vehicles. The Mercs and Beamers may be petrol but almost all the Landrowers and other backup vehicles including the home made Micros are deisel.

In the Middle East a liter of super (98) petrol is only Rs 35/- and they hardly use diesel vehicles.

Do people wonder why most Japanese cars are petrol? The toyotas hondas mitsubishis mazdas - coz the japanese are obsessed with environmental protection. Why is it we get second hand cars with odo around 40000km at a cheap price? Coz the japanese belive the more wear and tear in the engine will send out bad gases from exhaust so they tend to replace cars within two year cycles.

But SL being the MIRACLE OF ASIA wants old engines , and more harmful diesel fumes to cover our atmosphere. Pretty soon Colombo will have a fog like in some of the Asian cities like HK and Shanghigh. People are getting hit left right and center; any good car is unaffordable with so many taxes. Then the petrol to run a car is unaffordable due to taxes. When both are somehow afforded the roads are dangerous due to political convoys and gangs shooing it out in daylight. All this for voting for some *******.

2. Johan Oct 31

Ceypetco seems to be handing over the diesel business to IOC. IOC only raised prices for diesel by Rs. 2.

Also, diesel is used by Buses and lorries more than rich people. Look around you--the big mercedes and BMWs are petrol models mostly.

1. kane Oct 30

This is fantastic.why the these people are spending money promoting commonwealth in sri lanka.we have more issues to address than that.i doubt we even get commonwealth.even it happen look at the ceremonies we had past couple years.iifa was a total flop sri lankans are concern.we didnt get a chance to watch that.

Look at SLC.bankrupt.you see what will happen with the 2012 20-20.i can guarantee that organizers are fraudsters.how can someone run a government with such kind of corruption.they should have let rupee appreciate more and try to give concession for exporters.which india china used to do.this is totally wrong.