Top Secret

June 12, 2006 (LBO) – The Sri Lankan government is to ink a deal with Lanka Indian Oil Corp, towards the end of this month, to amend the petroleum pricing formula, officials said. "The small changes to the pricing formula are part of the agreement we reached with the Sri Lanka government on settling the outstanding fuel subsidy," K Ramakrishnan, Managing Director of Lanka IOC, told LBO on Monday.

Last week, the government agreed to repay an outstanding subsidy bill of 7.6 billion rupees to LIOC in cash and bonds, and amend the pricing formula.

Retail fuel prices are currently governed by a pricing formula pegged to world market prices, though final approval for a price increase comes from the Treasury.

"The agreement may be signed by the end of this month."

Neither party is willing to comment on the changes, though it will apply to both LIOC and state owned oil corporation Ceypetco, Ramakrishnan said.

The deal could include cutting profit margins –calculated as five percent on base retail prices before Value Added Tax, to 1.5 percent.

Top officials from Ceypetco claim that the formula is to be scrapped altogether by bringing forward the expiry da