Biggest difference in fuel pricing formula since LIOC entered in 2003

By Shamindra Ferdinando

Former Energy Minister Udaya Gammanpila said the Lanka-India Oil Company (LIOC) has effectively withdrawn from the local oil market and is pricing its products based on economic realities.

LIOC has achieved this by maintaining its diesel and petrol prices (per litre) at Rs 77 and Rs 92 respectively, higher than those of Petroleum Corporation (CPC), Pivithuru Chief Hela Urimaya said.

After raising the prices of diesel and petrol on 6 and 25 February 202, causing a price difference of Rs. 17 and Rs 27, per liter of diesel and petrol respectively, the LIOC widened this margin, the wider since entering the Sri Lankan market in 2003.

President Gotabaya Rajapaksa removed Gammanpila from the ministerial portfolio on March 3 within 24 hours after a group of dissident voters from the ruling Sri Lanka Podjana Peramuna (SLPP) unveiled an alternative economic plan.

Responding to The Island questions, lawmaker Gammanpila said the LIOC could not be blamed for seeking to cut losses. Under an agreement Sri Lanka had with India regarding LIOC’s entry into the local market, the Indian company had the right to raise prices unless Sri Lanka absorbed the losses.

Lawyer Gammanpila pointed out that Ceypetco’s current pricing formula does not reflect world market crude oil prices, which are rising even more, mainly due to the war in Ukraine.

Gamini Lokuge succeeded Gammanpila as energy minister while Pavitradevi Wanniarachchi was given the electricity portfolio, which was previously held by Lokuge.

MP Gammanpila said the latest hike would make it impossible for the vast majority of people to pump diesel or petrol from LIOC filling stations. However, those living in certain areas would face difficulties as they were served by LIOC. Under the terms of the 2003 agreement, the LIOC took over one-third of the service stations then managed by the CPC. At the time of the agreement, the national CPC network comprised 300 service stations. Today, LIOC operates 211 service stations.

LIOC blamed the rise in international prices for a variety of reasons, including the Russian invasion of Ukraine for raising its pricing formula for increases announced on February 6 and 24, although the latest was blamed on the Indian business called a significant depreciation of the Lankan rupee. against the US dollar.

In a statement released late Thursday evening, the LIOC quoted its managing director as saying that the depreciation of the rupee twice in seven days by Rs 57 against the USD had a direct impact on the landed cost of the diesel and gasoline, making them more expensive by an equivalent amount per litre. Oil and gas prices are also rising as Western countries respond to Moscow’s invasion with numerous sanctions to isolate Russia and cut it off from world oil markets. Our current losses are exorbitant given current international prices leaving no choice but to increase diesel and petrol prices. However, it is a painful reality that even after this price increase, there would still be heavy losses at prevailing international prices.

LIOC MD Gupta pointed out that LIOC does not receive any subsidy from the Sri Lankan government and that its losses are calculated on the basis of the actual landed cost of the product after taking into account the payment of applicable duties, taxes and other statutory levies, including including handling charges.

Former minister Gammanpila said the country lacked the means to cope with the economic crisis. “There is no point in denying this fact. The sacking of Wimal Weerawansa and Udaya Gammanpila would make no difference, the PHU leader said, urging the government to come up with a proper strategy at least now.

Lawmaker Gammanpila recalled his efforts to create a special fund to cushion the impact in the event of a sharp increase in fuel prices. The former minister alleged that his proposal which was made in March 2021 did not find favor with the Ministry of Finance. Even after a cabinet sub-committee approved the proposal in October 2021, the Finance Ministry simply ignored it, the MP alleged.

Gammanpila said that regardless of the repeated assurances given by the government regarding the normalization of fuel supply, the increase in LIOC would put the entire distribution of Ceypetco under enormous pressure. The former minister pointed out that LIOC’s sales volumes would drop so much that it would no longer matter.