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Govt. to absorb rising oil prices as long as they can: CPC already financially bleeding

14 Mar 2021

  • Fuel prices not revised since September 2019

  • CPC has no say in local fuel prices 

By The Sunday Morning Business Desk    While the Ministry of Energy is of the view to absorb the rising global oil prices as long as they can do so, state-owned debt-ridden Ceylon Petroleum Corporation (CPC) has already begun losing money due to local fuel prices being maintained at September 2019 levels, The Sunday Morning Business reliably learns.  CPC Deputy General Manager of Finance Varuna Nilanga Weerasooriya told us that regardless of oil prices in the global market skyrocketing amidst the decision of the Organisation of the Petroleum Exporting Countries (OPEC) to roll over cuts until end-March this year, CPC has been left with no other options but to maintain local oil prices.  “The price of an oil barrel was about $ 10 a couple of months ago which has shot up to $ 70 now. While the global scenario is like this, Sri Lanka is maintaining local fuel prices,” he added.  Weerasooriya stated that the Government has appointed a committee to monitor the fluctuations in global oil prices and this committee is what has the authority to decide on local fuel prices. He added that CPC cannot interfere in their decisions.  Disputing media reports that rule out a local fuel price revision for the next three months, in an exclusive interview with The Sunday Morning Business two weeks ago, Minister of Energy Udaya Gammanpila stated that he is uncertain of how long the Government could absorb the rising cost of global oil prices, thereby neither confirming nor denying a fuel price revision after three months.  Nevertheless, he added that the rapid phase of a global oil price hike is discouraging the Government to absorb the costs further. “Because of the pandemic, people are pressed with an increasing cost of living and loss of income. If you look at the producers, they have lost their international markets. So increasing fuel prices means increasing the cost of living, which means they will lose international markets. We do not want our producers to lose their remaining foreign orders,” Gammanpila added.  Bloomberg recently reported that oil jumped the most in more than a week after a US government report showed a record drop in domestic fuel inventories from the aftermath of a deep freeze that shuttered refineries in several states. “Crude futures in New York climbed 2.6% on 3 March,  snapping a three-day streak of losses. US gasoline inventories tumbled last week by the most since 1990 after a polar blast wiped out more than 5 million barrels a day of refining capacity in late February along the US Gulf Coast, according to Energy Information Administration data. Crude stockpiles swelled with refineries still shut,” it added.  In January this year amidst rising global oil prices, Gammanpila told us that the local prices of fuel would be revised this year only when the global oil prices decline to a certain extent, marking the first fuel price revision of the current Government. According to the Minister at that point, the wait for global oil prices to go down came amidst the Treasury’s cash-tight position to pump money into the stabilisation fund to absorb the financial burden of the consumers if the fund and the formula are to be implemented at a time global oil prices are high.  The current Government that was elected in November 2019 abandoned the fuel pricing formula which was introduced by the previous Government. In fact, the current Government is yet to announce its first fuel price revision. The local oil prices were last revised in September 2019, under the monthly fuel pricing formula. Under this formula alone, fuel prices were revised about 19 times based on both scientific and political reasons. Oil prices hit negative levels when the pandemic spread outside of China in the first half of last year. Nevertheless, the Sri Lankan Government maintained fuel prices without reducing them to reflect the change in the global oil market, but pledged it would pass down the benefits in the form of reduced grocery prices. As pledged, the prices of groceries were reduced, but these returned to its previous levels in a few weeks. According to Finance Ministry statistics, CPC’s total debt due to state-run People’s Bank and Bank of Ceylon had reached Rs. 592.7 billion by end-April 2020, in comparison to Rs. 566 billion in December 2019.


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