Pricing Politics

Sept 14, 2008 (LBO) – Sri Lankan fuel users are suffering from the lack of a transparent price formula and severe politicization of pricing that had sometimes caused high inflation and balance of payments troubles in the island. Diesel users are mostly commercial enterprises and super rich sections of society including politicians who are allowed to buy tax-fee diesel guzzling SUVs.

Chairman of state-run Ceylon Petroleum Corporation (CPC) Ashantha de Mel said he was unable to cut prices immediately because of large losses incurred in the third quarter of 2008.

In the first six months of the 2008 CPC had managed to make a profit of 1.7 billion rupees, he said, with the bottom line boosted with hedging gains.

The government has also placed a discriminatory tax on petrol which hurts Lanka IOC more, a unit of Indian Oil that has a third share of the market. But despite the tax, Lanka IOC is reporting profits.

De Mel dismisses charges from Sri Lanka’s main opposition United National Party – which successfully operated price formula in a previous administration – that CPC had stocked up on fuel at high prices and is unable to bring down prices for that reason.

He says CPC is only carrying one month of stock.