Business

Fuel prices to increase amidst rising oil prices?

  • Lanka IOC unhappy with “unscientific” price formula

The Government is unlikely to reduce fuel prices in the upcoming fuel price revision scheduled for 10th January (Thursday), and may even increase it as per the price formula, as global oil prices have risen considerably since the previous revision on 22nd December.

The rise in oil prices has come after China’s Commerce Ministry last week said it expects to hold vice-ministerial level trade talks with the US counterparts in Beijing on 7 and 8 January (today and tomorrow) and the Organisation of the Petroleum Exporting Countries (OPEC) announced supply cuts.

The Sri Lankan Government last revised fuel prices on 22 December, when the Singapore market refined products prices were at $ 55.25 for a barrel of petrol and $ 65.48 for a barrel of diesel.

According to the Central Bank of Sri Lanka (CBSL) on Monday (07), a barrel of petrol in Singapore prices was $ 58.40, a 5.3% increase from its price on 22 December and a barrel of diesel had gone up by 0.77% from that day to $ 65.99.

Global oil prices, bolstered by US sanctions, were at their peak levels in October and hit their lowest levels in December, owing to increased supply. In an effort to lift prices, OPEC and non-OPEC members have agreed to reduce supply by 1.2 million barrels per day (bpd) in 2019, and the first phase of that began with Saudi Arabia limiting supply last week.

Meanwhile, The Sunday Morning Business contacted Sri Lanka’s only private oil company, Lanka IOC (LIOC) Managing Director Shyam Bohra to get his comments on the fuel price formula and its impact on LIOC.

“Revisions are not being done in a scientific method. If they approach it in a scientific way, we will definitely welcome this formula,” he said.

According to him, when revising, the average fuel price of the previous month has to be taken into account whereas the Government takes the average of the previous day.

“We cannot take any measures to safeguard the company unless the pricing system changes. They said they’ll take the average of the previous month when revising the fuel prices, but now they are taking the previous day’s prices”

Bohra was disappointed over the last four price revisions which went beyond the initial promise of revising once for every two months.

“In the last 50 days they have revised it four times. This will definitely affect a company like us. We didn’t expect this from the fuel price formula,” he added.

Backed by the International Monetary Fund (IMF), Minister of Finance and Mass Media Mangala Samaraweera introduced the fuel price formula in May, 2018, reflecting fluctuations in the global oil prices, local costs involved in pumping, storage, and maintenance, and the taxes levied on crude and refined fuel imports.

Following the introduction of the formula, fuel prices have been revised nine times in 2018, excluding the three reductions, made by MP Mahinda Rajapaksa in his capacity as the Prime Minister and the Minister of Finance in the 51-day Government.

The main aim of the formula was to prevent the losses that have been incurred through the state-owned oil company, Ceylon Petroleum Corporation (CEYPETCO).

CEYPETCO refused to provide any statistical data on its revenue from May, 2018, as there is no managing director or a chairman at the moment.

However, according to news reports accumulated losses at the CPC at the end of 2017 stood at Rs. 217 billion while it lost a further Rs. 18 billion in April, 2018.