5 POINTERS FROM THE LATEST FUEL PRICE REVISION

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1. Global oil price high: On the 9th of May 2018, global oil prices reached its highest level since November 2014; prices have been on an upward trend since July 2017.

2. Upward revision of domestic prices compared to global rise: Since the last time (January 2015) petrol and diesel prices were changed by the government, global oil prices have risen 55% (from an average of US$ 48 a barrel to US$75 a barrel). The average change in the latest upward revision locally for petrol was 16% while for diesel it was 11%.

3. A comparable situation to 2009? When the global oil price was around the current levels in December 2009, the domestic fuel price for petrol and diesel were lower by 15% and 42% respectively; relative to where it stands now. However, in this period the Sri Lankan rupee has depreciated 37% against the US dollar.

4. New pricing formula to be expected: According to the Finance Ministry, Sri Lanka is expected to introduce a pricing formula for fuel; which will be revised every 2 months. The last time Sri Lanka had a pricing formula was in January 2002 and was revised almost on a monthly basis for two years. Since then, successive price changes have been administered, including the recent one.

5. Keeping domestic retail prices unchanged, increased the consumer subsidy: From July 2017, global oil prices have risen past US$ 50 a barrel, resulting in the government subsidising petroleum products. According to the CBSL Annual Report for 2017, the estimated subsidy for petroleum products including kerosene was about Rs. 31 billion. The Ceylon Petroleum Corporation (CPC) moved from a profit of Rs 69.6 billion in 2016 to a loss of Rs. 5.1 billion in 2017. The unsustainability of the subsidies and the decline in profitability of the CPC with the trend in global oil prices are key reasons for the price change.

 

 

The Ceylon Chamber of Commerce

Economic Intelligence Unit

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