Sri Lanka and India ratings could be hurt by oil subsidies: S&P

Apr 30, 2012 (LBO) – Sri Lanka and India could face credit downgrade if oil prices rise further and energy subsidies are not reduced, Standard and Poor’s said in an Asia-Pacific report. “In India and Sri Lanka, we expect fuel and related subsidies to markedly worsen fiscal and external deficits unless subsidy levels fall,” Standard & Poor’s credit analyst Kim Eng Tan said in a statement.

“In the absence of offsetting positive developments, these sovereigns could see negative
rating actions as a result.”

Countries are most vulnerable to a downgrade if average oil price stay above 150 US dollars a barrel for more than a year which was now considered to be “only modestly likely”, S & P said.

Now Brent crude is around 119 US dollars a barre.

Sri Lanka is now selling both diesel and petrol above cost but power is not fully market priced.

Petrol is sold at 149 rupees a litre when the refined product costs about 106 rupees in Singapore (129 US dollars a barrel). Diesel is sold at 115 rupees, barely above the refined price of 107 rupees in Singapore (132 US dollars a barrel).

But Sri Lanka does not have an automatic price formula to pass on oil costs immediatel