Sri Lanka’s CPC loses Rs18 billion in 2015 on price cuts and currency collapse
ECONOMYNEXT – Sri Lanka’s Ceylon Petroleum Corporation has lost Rs18 billion in 2015, plunging it into the red, following politically directed price cuts in 2015 and a currency collapse, despite sharply lower oil prices.
"In spite of falling international oil prices, CPC’s financial position weakened during the year," the Central Bank said in its 2015 annual report.
A series of price cuts in the beginning of the year and a fall in the rupee, which pushed up the cost of dollar borrowings and payments to suppliers, drove the state-run distributor back into the red.
Exporting Naptha, which is usually sold to the Ceylon Electricity Board, also lost the firm Rs6.2 billion.
Sri Lanka’s Finance Minister Ravi Karunanayake ordered several price cuts to fuel in 2015. Kerosene was cut for the second time during a revised budget. Kerosene, which is similar to jet fuel, is the most expensive to import and is now used by big businesses as it is underpriced.
The Central Bank said taxes were not cut to match the price cuts. By not cutting taxes on state enterprises for deceptive ‘reliefs’ given through budgets, the deficit can be falsified.
SOEs are then bailed out later, also outside the budget, again understating the deficit.
CPC was able to repay loans in the first eight months of the year, but its liabilities ballooned Rs18.9 billion to Rs264.5 billion after the rupee collapsed in the latter part of the year.
CPC has been misused to borrow dollars or run arrears to foreign suppliers during balance of payments troubles in the past, which is triggered by Central Bank money printing.
"The introduction of an appropriate pricing formula for domestic petroleum products is essential to improve the financial viability of the CPC," the Central Bank said, echoing the calls of other economists and analysts.
Analysts say the loss from exporting Naptha, a heavy fuel, probably also shows that the product is overpriced to CPC, and a market base for Naptha may improve the ‘merit order’ of CEB power plants using Naptha.
Economists and analysts have called for a reform of the Central Bank, or its abolition in favour of a currency board to prevent is ability to print money, resist market rate interest rates and generate currency collapses.