Price Signals

Mar 05, 2012 (LBO) – Sri Lanka’s Gampaha district in the Western province bordering the capital Colombo was the area with the highest kerosene consumption with most of it going to factories, the finance ministry said. Though there was a widespread belief that kerosene is consumed by poor households with no electricity including houses of plantation workers, 40 percent of the kerosene was consumed in Gampaha, a statement on the finance ministry website said.

“A large portion of this goes to factories,” the statement said. “Another portion is used by the fishing community. Some use kerosene as a substitute for diesel.

“Even when other areas are concerned, consumption of kerosene is very high in the coastal line. According to security forces, kerosene is used as a fuel even in manufacturing illicit liquor.”

Sri Lanka’s rulers have for years sold energy below cost, and kerosene in particular under a long-running energy deception policy and funded the cost with high taxes on other goods including basis foods or bank credit.

Kerosene and diesel are the most expensive refined fuels to import, and petrol is cheaper. But in Sri Lanka diesel is priced below petrol.

The wrong price signals then give i