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July 9, 2006 (LBO) – Sri Lanka will continue to subsidise retail fuel prices in the absence of a new pricing formula, as Colombo threatened to takeover Indian Oil Corp’s local unit if they fail to resume gasoline sales, officials said Sunday. Sri Lanka is a net oil importer, with fuel shipments doubling to 1.6 billion dollars in 2005 due to soaring global prices. Faced with a 2.0 billion dollar oil bill this year, the government in July refused to subsidise state-run Ceylon Petroleum Corp. and Lanka IOC when they sell retail fuel at a steep discount to global prices.

But the decision remains on paper, in the absence of a pricing mechanism and both firms are unable to revise prices, instead surviving off bank borrowings to meet import bills.

"The government owes us around 23 billion rupees todate, which includes 11 billion rupees in subsidies and the rest from selling fuel to state corporations," CPC Chairman Jaliya Medagama told LBO.

CPC, he says, sought a 5-10 rupee hike in retail fuel prices last week, as the corporation is now financing import bills through expensive bank overdrafts.

"The price revision is political, but in the meantime the government will have to reimburse us for the shortfall," Medagama said.


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