ECONOMYNET - Sri Lanka's state-run Ceylon Petroleum Corporation, a key trigger of economic instability in the country, has lost 68 billion rupees in the nine months to September 2017, amid mis-pricing of fuel, officials said.
CPC is now losing 11 rupees on a litre of petrol, 7 rupees on a litre of diesel and 25 rupees from kerosene, after paying turnover taxes.
Sri Lanka's government has still not made a decision on implementing a price formula, Petroleum Minister Arjuna Ranatunga said.
"The decision on pricing formula has to be taken by the government," Ranatunga told reporters. "Unfortunate thing is if we try to get a formula done, it will affect the masses," he claimed.
"In the future there can be a change. But at the moment we are not looking at it. I do not think it is the best time to do it, since the cost of living has gone up."
Energy however is used less by the poor, and mostly by the rich. Economists say 70 percent of the fuel sold in the country are consumed by the upper 30 percent of income earners in society, an economist said last week.
The consumption of either petrol, diesel or electricity goes up with income.
Central Bank Governor Indrajit Coomaraswamy said off-budget subsidies given by CPC and CEB has been a problem.
Losses of the CPC or Ceylon Electricity Board or both has also triggered balance of payments crises in the past when they were accommodated by central bank credit, when interest rates were not allowed to go up, with the rupee collapsing, pushing inflation up and hurting the poor most.
Later taxes collected from foods of the common people including from hospital bills, are used by the Treasury to subsidize CPC and CEB, whose customers included exporters who sell goods in countries with higher income levels.
Ranatunga's brother Dammika, who is chairman of CPC, said state agencies owed 60 billion in arrears to the bank and it usually borrowed from state-run Bank of Ceylon and People's Bank.
He said 275 billion rupees in subsidies were due from the Treasury to cover past losses.
This year's losses of 68 billion rupees are more than twice the extra 25 billion rupees expected from a new Inland Revenue Bill which raised taxes on employed persons, companies and even pension funds.
Ceylon Petroleum Corporation's losses, which are funded with bank borrowings, accommodated by the central bank (or tax off-sets which are then filled by printed money as happened in the 2004 balance of payments crisis).
"We have to provide fuel to Ceylon Electricity Board or SriLankan Airlines whether or not they pay," said.
Some of the subsidies due from the Treasury related to the losses run during the 2011/2012 balance of payments crisis, which were filled by borrowings from state banks.
The central bank which prevented interest rates from going up by printing money, then triggered the balance of payments crisis.
An automatic pricing formula will match import costs to domestic consumption. Higher spending on fuel will reduce spending on other goods, pushing down non-oil imports, keeping the economy stable and requiring no hike in interest.
Sri Lanka also has a habit of raising fuel prices after creating a balance of payment crisis and a collapse in the rupee rather than before, which will prevent a collapse in the rupee.
At the moment however private credit is slowing and central government budget (outside of CPC) is stabilizing. (Colombo/Oct08/2017)