Sri Lanka in muddle after encouraging kerosene mis-use with subsidy

ECONOMYNEXT – Steep price cuts of Kerosene (paraffin) by ex-Finance Minister Ravi Karunayake has encouraged adulteration of more expensive distillates and greater industrial use of the fuel, which state-run Ceylon Petroleum Corporation is now scrambling to counter.

In the latest move, CPC has ordered fuel distributors to stop selling kerosene in bulk or to large containers, the ministry of petroleum said.

The CPC is selling kerosene a 30 rupee loss per litre, the statement said.

Then finance minister Ravi Karunanayake started slashing kerosene prices from 2015, amid warnings that it will lead to factories using the fuel.

"When comparing the sales of kerosene in 2015 to 2017, there is an increase," the ministry of Petroleum said in a statement.

"The main reason is the sale of kerosene for industrial use."

Analysts warned in early 2015 that this will happen. Then Treasury secretary P B Jayasundera reduced subsidies ending the incentive to mis-use. At the time big factories were converting furnace oil driven kilns and other machines to run on kerosene.

"The subsidy on kerosene should be removed," EN economics columnist Bellwether wrote after the current administration started severe mis-pricing of kerosene, which is similar to jet fuel.

"The Rajapaksa regime raised Kero prices after discovering that a few industrialists were the biggest users. The current administration has cut it several times in suspicious ways."

Over weekend CPC had raided and closed petrol stations that were selling kerosene in bulk, after encouraging people to mis-use fuel with the subsidy.





Petroleum Minister Arjuna Ranatuga said that diesel was being mixed with subsidized kerosene and some diesel driven buses were also using kerosene.

The CPC sells a colourless Kerosene for industrial use and subsized pink one for use by fishery and other sectors.

The original justification for low priced kerosene was the poor households used it for lighting. But now almost all households have electricity. The correct move would be to give income support for poor households instead of giving indiscriminate subsidies, economic analysts say. (Colombo/Jan22/2018)

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