- Private operators demand steep price hikes
- Prez moves to revise fuel agreements
- Mounting losses threaten fuel supplies
- Fuel subsidies strain State finances
- Liberalisation faces its biggest test
Sri Lanka’s petroleum sector is heading towards a fresh confrontation between the Government and private fuel suppliers, with mounting losses, restrictions on fuel distribution, and disagreements over pricing rights threatening to undermine the very objectives of the country’s petroleum market liberalisation.
While private operators have reportedly demanded diesel price increases exceeding Rs. 100 per litre, President Anura Kumara Dissanayake has rejected passing the full burden onto consumers and announced plans to amend the agreements governing private petroleum suppliers.
The Government has also decided to establish 75 additional Ceylon Petroleum Corporation (CPC) filling stations in areas affected by restricted private sector supplies, signalling a more assertive State intervention in a market broadened for liberalisation only three years ago.
Meanwhile, when contacted by The Sunday Morning, Minister of Energy Anura Karunathilaka acknowledged that private petroleum suppliers were facing serious financial difficulties as international fuel prices continued to increase. “They are not merely experiencing a reduction in profits; some have been incurring losses since March,” the Minister said.
However, he maintained that the Government could not allow domestic fuel prices to increase at the same rate as international prices, given the pressure already faced by consumers.
Operators claim losses
The extent of the dispute became clearer when CPC Chairman D.J.A.S. De S. Rajakaruna disclosed the losses reported by private petroleum companies during discussions with the Government.
According to the figures presented by the companies, Sinopec reported the highest diesel loss at Rs. 192 per litre, followed by RM Parks at Rs. 173 and Lanka IOC at Rs. 136. The companies also reported losses on petrol, with Sinopec claiming Rs. 67 per litre, Lanka IOC Rs. 57, and RM Parks Rs. 38.75.
The figures underline the widening disparity between import costs and domestic retail prices, although the differences also reflect the respective procurement and operating costs of individual suppliers.
However, Karunathilaka told The Sunday Morning that one operator had calculated a diesel selling price of approximately Rs. 570 per litre, compared to the prevailing local price of Rs. 392.
“Different operators have different figures. For example, according to the calculations submitted by one operator, the landed cost and other applicable expenses result in an expected diesel selling price of approximately Rs. 570 per litre,” he said.
The difference of Rs. 178 per litre represents an increase of approximately 45% over the prevailing selling price.
The Minister explained that international diesel prices had increased from approximately $ 89.90 per barrel in February to $ 156 in August and around $ 170 by mid-September. “When international prices increased by approximately 120%, we increased domestic prices by a maximum of around 55%,” he said. “Consumers are already facing considerable difficulties. It is not easy for them to bear further increases.”
Prez rejects demands, targets agreements
The dispute has now drawn direct intervention from President Dissanayake, who has accused private suppliers of restricting fuel distribution while seeking substantial increases in retail prices.
Addressing a National People’s Power gathering in Ibbagamuwa, the President revealed that one private company had requested a diesel price increase of Rs. 132 per litre, while another had sought Rs. 116. However, the Government had limited the latest CPC diesel price increase to Rs. 10 per litre, while providing a subsidy of Rs. 70 per litre to cushion consumers.
The President also announced that the Government intended to revise existing agreements with private petroleum companies, arguing that certain contractual provisions restricted the State’s ability to intervene when fuel supplies were disrupted. “If they cannot supply the remaining 23%, we will do it ourselves,” he declared, referring to the private sector’s share of the diesel market at the time of his statement.
The President subsequently disclosed that the Government had spent Rs. 60 billion during the first five months of the year on fuel subsidies, including Rs. 100 per litre of diesel and Rs. 20 per litre of petrol. He said a further Rs. 41 billion had been allocated to maintain a Rs. 70-per-litre diesel subsidy during October, November, and December.
According to the President, the CPC had recorded profits of Rs. 28 billion and is in a position to return part of those earnings to consumers through price relief.
Pvt. companies dispute extent of pricing freedom
However, private petroleum operators have presented a different interpretation of the pricing arrangements.
According to reports published earlier this month, Lanka IOC, Sinopec, and RM Parks were awaiting formal written communication from the Energy Ministry setting out the maximum permitted selling prices for petroleum products.
A source close to the companies maintained that the operators could determine their selling prices below the ceiling specified by the ministry but required formal notification before proceeding. “We can then set our prices below the maximum ceiling announced by the ministry or the CPC, for that matter,” the source said.
The three companies were reported to account collectively for approximately 35% of domestic fuel supply.
The position appears to differ from the Government’s assertion that the agreements already permit operators to determine prices based on the existing formula. Speaking in Parliament in September, Karunathilaka said that private distributors were entitled to a profit margin of 4% under their agreements and that the Government had no intention of imposing a common minimum or maximum selling price.
“According to the agreements signed, they can keep a 4% profit margin, and if a minimum price is established, their margin is lost, and the Government has to provide them with compensation for the loss,” he said.
Meanwhile, CPC Chairman Rajakaruna has also indicated that the agreements contain compensation provisions where companies incur losses as a result of selling fuel at Government-stipulated prices.
Who controls SL’s fuel market?
The controversy has also highlighted the structure of the petroleum retail sector, where the CPC remains the dominant supplier despite the entry of foreign operators.
According to figures reported this month, Sri Lanka has approximately 1,440 filling stations, of which 887 operate under Ceypetco, 273 under Lanka IOC, 150 under Sinopec, and 130 under RM Parks. Although private suppliers collectively account for approximately 38.4% of filling stations, their share of fuel distribution varies considerably between products.
The Minister informed Parliament that Lanka IOC had reduced auto diesel releases by 45%, super diesel by approximately 87%, and 92 octane petrol by 3%, compared to February. Sinopec had reduced diesel releases by 66% and 92 octane petrol by 30%, while RM Parks had reportedly reduced diesel supplies by 48%.
The CPC, meanwhile, increased its diesel distribution by approximately 27%, super diesel by 44%, 95 octane petrol by 7%, and 92 octane petrol by 9% to compensate for reduced private sector releases.
The Minister said that the CPC’s share of diesel supply had increased sharply, with figures cited in parliamentary discussions ranging from approximately 77% to 82%, depending on the reporting period.
Agreements leave gaps in enforcement
The Government’s difficulty in compelling private companies to release fuel has also exposed limitations in the existing contractual framework.
Karunathilaka told Parliament that the agreements permitted the authorities to require operators to maintain minimum fuel stocks and intervene in certain circumstances involving import volumes, but did not provide equivalent powers to direct fuel deliveries to particular filling stations.
“Under these agreements, we have no ability to order them to release fuel to filling stations in a particular manner. What we can do is issue certain directions to maintain minimum fuel stocks in Sri Lanka,” he said.
The Minister subsequently warned that legal advice would be sought if companies continued restricting distribution, with any action to be considered under the relevant agreements and statutory powers.
Subsidies and the cost of consumer protection
The Government’s principal response to rising international petroleum prices has been to absorb part of the increase through subsidies rather than transferring the entire cost to consumers.
Under the 1 October revision, the CPC increased 92 octane petrol by Rs. 15 to Rs. 414 per litre, auto diesel by Rs. 10 to Rs. 392, and super diesel by Rs. 50 to Rs. 528. Furthermore, 95 octane petrol remained at Rs. 475, while kerosene remained at Rs. 285.
The Cabinet approved further diesel subsidies for the final three months of the year, with allocations capped at Rs. 15 billion in October, Rs. 13.5 billion in November, and Rs. 12.15 billion in December. The total approved allocation amounts to Rs. 40.65 billion.
Liberalisation at a crossroads
Sri Lanka’s experience also raises questions about the long-term success of the petroleum market liberalisation programme.
The entry of Sinopec, RM Parks, and other foreign suppliers was expected to strengthen competition, attract investment, and improve the country’s ability to withstand future fuel supply disruptions.
However, the Central Bank’s 2025 economic and social infrastructure review recorded that United Petroleum Lanka, another entrant to the liberalised market, had announced its withdrawal in early 2025, citing difficulties associated with operating in the newly opened sector.
The latest pricing dispute suggests that the sustainability of the remaining private operators will depend not only on their ability to finance imports but also on whether the pricing framework provides sufficient predictability for commercial operations.