Price Hike

Feb 11, 2012 (LBO) – Sri Lanka has steeply raised the price of diesel partially correcting chronic mis-pricing between refined fuels in a move that could also help reduce loans taken by petroleum distributors and stabilize a weakening exchange rate. Diesel may be now priced just around cost when freight, port levies and taxes are added, an industry official said.

Sri Lanka does not have an automatic fuel pricing formula that can prevent economic imbalances from building up and threatening the country’s currency peg and inflation.

India is already moving towards formula based pricing in what the government calls ‘de-control’.

Sri Lanka devised a fuel pricing formula, two balance of payments crises ago around 2000, but it was abandoned in late 2004 after it helped strengthen the exchange rate and lower inflation to near zero due to pressure from Janatha Vimukthi Peramuna, a Marxist party.

In the current balance of payments crisis Sri Lanka has lost about a quarter of its foreign reserves.

State-run Ceylon Petroleum Corporation said a litre of 90-octane petrol would be raised by 12 rupees to 149 rupees and standard auto diesel would be raised by 31 rupees to 115 rupees partially correcting fuel mis-pricing.

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