Sri Lanka should price energy on formulae quickly: Eran

ECONOMYNEXT – Sri Lanka has to start market pricing energy at state enterprises sooner rather than later, Deputy State Enterprises Minister Eran Wickramaratne said as crude and refined petroleum like butane and propane rose sharply over the last quarter of 2016.

"Price formulae on energy and gas and will be introduced by the government," he said. "The sooner we implement it, the better."
After crude and refined products collapsed in in early 2016, price have risen in the last quarter.

Crude prices have risen from below $38 to around $54. Economist are forecasting oil at around $70 by the end of the year, although US monetary tightening can help keep dollar prices in check.

Wickrmaratne said the performance of 55 main state enterprises have improved markedly under the new administration.

Net profits after deducting losses were Rs42.2 billion at the 55 SOEs in 2014. It had improved to Rs64.9 billion in 2015, and by August 2016, net profits had risen to Rs123.6 billion.

"However, profitability is also linked to favourable global prices on energy," Wickramaratne noted.

"This situation will get reversed unless domestic pricing is linked to international prices. And this is the only the way we will be able to sustain a public sector, which is not a burden on the taxpayer."

State energy utilities, like Ceylon Petroleum Corporation, have been paying back loans to the banking system. But over the December quarter, SOEs became net borrowers from the banking system. A drought has also raised thermal power costs for the Ceylon Electricity Board.

Butane and propane prices, which make up liquefied petroleum gas, sold by state-run Litro gas has surged over the past three months. Privately owned Laugfs Gas said it wanted a price increase.

Sri Lanka had a working formula for LP Gas, but it was abandoned by the current administration in a major policy error, analyst say. The petroleum corporation came up with a formula, but it was also not implemented in another policy error.





In the past, SOE energy losses financed by bank credit have been a key factor in driving interest rates up, which then turn into balance of payments crises when the Central Bank prints money to stop interest rates from going up.

Even if the deficit of the central government budget improves, SOE borrowings can de-stabilize the economy. Any gains made from tax hikes can therefore be lost quickly. (Colombo/Mar15/2017)

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