Sri Lanka IOC unit in losses after state directed fuel price cut

COLOMBO (EconomyNext) – Lanka IOC, a unit of Indian Oil Corporation lost 1.06 billion rupees in the March 2015 quarter interim accounts showed, following a state directed price cut and spiking oil prices down from a profit of 722 million rupees a year earlier.

The firm reported a loss of 2.0 rupees per share for the quarter. In the December quarter the firm reported a 610 million rupee profit.

In the March quarter revenues fell 25 percent to 15.8 billion rupees following a price cuts and costs fell at a slower 17 percent to 16.1 billion rupees leaving the firm with gross loss of 365 million rupees.

Oil prices fell sharply last year but picked in the first quarter by about 20 dollars a barrel after Sri Lanka’s new administration asked oil companies to cut prices.

A price formula was promised for retail fuel by June.

State-run Ceylon Petroleum Corporation lost 4.0 billion rupees in the quarter.

When imported oil is sold at a loss, which is then financed by credit which is in turn backed by liquidity provided by the Central Bank, the exchange rate comes under pressure from increased non-oil imports and foreign reserves are lost.

Market pricing oil generates a matching reduction in non-oil imports provided no central bank credit is extended and higher prices may also reduce or slow the growth in oil imports.

 

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