Sri Lanka needs ‘realistic’ petroleum price formula: Central Bank

April 14, 2010 (LBO) – Sri Lanka needs a price formula to match import costs to retail prices as a part of a reform of the energy sector, the Central Bank said as the state petroleum utility lost 12.3 billion rupees in 2009. “A realistic pricing formula needs to be developed to price petroleum products in the local market and the prices should be adjusted at reasonable intervals based on movements in the international oil prices,” the Central Bank said in its annual report.

In Sri Lanka some types of petroleum products, especially petrol, are heavily taxed through a plethora of different levies including import duties, excise taxes and value added tax making the sector a top generator of state revenues.

But the lack of a price formula makes pricing arbitrary and exposes the economy and the people to the capricious whims of politicians.

Credit Mountains

Both the Ceylon Petroleum Corporation and Ceylon Electricity Board, a state power utility, borrow heavily from banks to cover losses when prices are held down crowding out the rest of the private sector.

“The persistently high outstanding liability of the CEB to the CPC has made the CPC to borrow substantially from the banking system thereby c