By P.K. Balachandran, IANS
Colombo : Monday’s hike in the administered prices of petrol and diesel in Sri Lanka is bad news for the already overburdened consumer, but good news for the cash-strapped petroleum companies, including the Indian-owned Lanka Indian Oil Corp (LIOC).
“The hike will help the oil sector stabilise and grow. The government’s approach to pricing has been practical,” K. Ramakrishnan, chairman and managing director of LIOC, told IANS Monday.
The LIOC, which is a wholly owned subsidiary of the IOC, runs more than 100 petrol pumps in the island besides having on lease the giant oil storage tanks in Trincomalee in northeast Sri Lanka.
Given the glaring mismatch between the high price of oil in the international market and the low selling price of petroleum products in Sri Lanka, there was no alternative available to the Mahinda Rajapaksa government other than to raise retail prices of petrol and diesel.
The hike is SLR10 (Sri Lankan rupees) per litre for petrol, and SLR5 per litre for diesel. Petrol will now be sold at SLR127 ($1.1) per litre and diesel at SLR80 ($0.73) per litre.
“Another SLR5 per litre on diesel will help LIOC break even,” Ramakrishnan said.
LIOC had been losing SLR18 ($0.16) per litre on diesel before Monday’s increase. That had forced it to draw on its accumulated profit of SLR1.2 billion ($11 million) in the past two months.
Ramakrishnan would like some tax concessions if a further hike in prices was not possible.
But it is unlikely the government will grant this wish because in Sri Lanka the state does not get as much by way of taxes from the oil sector as, say, India does.
In Sri Lanka, the government’s share of the income from oil is 26 percent in the case of petrol and 6 percent in the case of diesel. But in India it is approximately 55 percent and 38 percent, respectively, Ramakrishnan said.
LIOC as well as the Sri Lankan government-owned Ceylon Petroleum Corp (CPC) had been suffering badly because of the unrealistically low pricing of petroleum products by successive Sri Lankan governments under pressure from leftist parties.
The pricing structure as well as inherent inefficiencies had resulted in the CPC showing a loss of SLR3 billion ($27.6 million) last year.
Both CPC and LIOC had lost because the huge subsidies they were getting from the state treasury were stopped.
But the flip side of the withdrawal of the subsidies was that the door had been opened to more rational and periodic price revisions, based on an agreed formula as well as market imperatives.
The last revision, made on this basis, was in July 2007.