Pricey Burn

April 16, 2007 (LBO) – A litre of diesel may be raised by five rupees tomorrow in the face of rising global oil prices, Ceylon Petroleum Corporation Chairman Ashantha de Mel said. “Though increases in fuel prices raised the price level, its overall impact on the future inflation will be to lower the inflation, since the government will be able to reduce the subsidy cost, which is mostly met through inflationary financing,” the bank added. Meanwhile, energy minister A H M Fowzie said discussions would be held tomorrow to see whether there were alternative means to avoid a price increase.

At the current global prices the CPC is selling diesel 9 rupees and 50 cents below cost and petrol 6 rupees below cost, de Mel said.

The utility had hedged a part of its diesel import costs through the use of options but it only gave upside protection of two dollars a barrel.

Ceylon Petroleum is receiving almost 100 million rupees on the expiry of the hedge.

Economists have warned that delaying petroleum price increases and funding the losses with bank debt drives up inflation and also creates balance of payments pressure.

In 2004, after Sri Lanka abandoned a monthly fuel p