A Fuel Dealer’s Perspective

The importation and distribution of petroleum products, which had previously been carried out by several foreign oil companies, were transferred to the Ceylon Petroleum Corporation (CPC) through legislation presented to Parliament in 1962. At the time, this was repeatedly portrayed as a major national achievement and an act of patriotism.

It is said that, after receiving compensation for their assets, the foreign companies were preparing to withdraw to their respective home countries. However, following an invitation from then Prime Minister Lee Kuan Yew, who was working to transform Singapore into a developed nation, these companies reportedly redirected their investments to Singapore. Today, Singapore is one of the region’s major petroleum trading and distribution hubs, and Sri Lanka itself imports petroleum products from Singapore.

Although the Ceylon Petroleum Corporation, established following the nationalisation of the petroleum industry, was managed with relatively limited political interference during its first two decades, this situation gradually changed. By the latter part of the 1970s, the Corporation had increasingly become a mechanism for providing employment. A significant proportion of these recruitments reportedly came from the political constituencies of the ministers responsible for the Corporation.

By the 1990s, the Corporation was under the purview of a minister whose political stronghold was Kandy. The scale of recruitment during that period was reflected in a popular saying of the time: that if the Kandy road were ever to be closed, the Petroleum Corporation would have to close along with it.

Such imprudent and narrow political interventions have had long-term consequences. According to a statement reportedly made to the media recently by the current Chairman, the two institutions under the petroleum sector—Ceypetco and CPSTL—together have an excess workforce of approximately 3,000 employees.

The Petroleum Corporation is also an institution that generally pays comparatively high salaries when measured against many other state-sector organisations. Therefore, one does not need to be an expert in arithmetic to understand the substantial financial burden associated with maintaining such an excess workforce.

Nevertheless, it must also be acknowledged that both institutions continue to operate within their respective mandates and make considerable efforts to meet the requirements of fuel dealers.

In particular, CPSTL, which is responsible for petroleum distribution, has generally maintained an efficient system of transporting and delivering the quantities of fuel ordered daily by filling stations across the country within the required timeframes.

It has also been reported that, after years of accumulated losses, the Government has taken over the Corporation’s carried-forward losses and instructed its senior management to operate the institution profitably. As a result, it was reported in a recent Sunday news broadcast that the Corporation had recorded a profit of approximately Rs. 27 billion. This is undoubtedly a positive development.

Furthermore, the Corporation has announced several important infrastructure initiatives, including the construction of additional storage tanks to increase petroleum storage capacity, the replacement of ageing and leaking pipelines connecting the port with the Kolonnawa and Sapugaskanda facilities, and the expansion of refinery capacity.

While all these measures are positive and necessary, there is one important component of the petroleum supply chain that appears to have been overlooked—whether deliberately or inadvertently: the dealers at the very end of the Corporation’s distribution network.

In other words, while the Corporation operates largely in the role of a wholesaler, its dealers undertake the considerably more difficult and risk-laden business of retailing fuel to the public.

For this role, dealers receive a margin or discount. This amount is incorporated into the retail price paid by the consumer.

For many years, CPC paid its fuel dealers a discount equivalent to 3% of the selling price. However, from 1 March 2025, this system was changed, resulting in a significant reduction in the dealers’ effective margin.

The previous system, under which the dealer’s discount was calculated as a percentage of the selling price, was discontinued. Instead, the discount is now based on the volume of fuel sold. Under the new arrangement, a dealer receives approximately Rs. 8 per litre sold.

The current price of a litre of petrol is approximately Rs. 400. Had the previous 3% margin remained in place, a dealer would receive approximately Rs. 12 per litre. Under the present system, however, the dealer receives only around Rs. 8 per litre—equivalent to approximately 2% of the retail price.

Furthermore, dealers are required to pay 18% VAT on this margin each month. Consequently, the effective amount retained by the dealer is only around 1.68% of the retail selling price.

In other words, dealers have effectively experienced a reduction of approximately 40% in the margin they previously received.

From this reduced margin, dealers must meet a wide range of operating expenses, including employee salaries, Employees’ Provident Fund contributions, environmental, trade and fire-safety licences, insurance, property rates, water, electricity and telephone bills, as well as fuel-pump repairs, building maintenance and numerous other expenses associated with operating a filling station.

The reality is that the present margin is increasingly insufficient to meet these costs.

What makes the situation even more difficult is that foreign companies that have recently entered Sri Lanka’s fuel retail market continue to provide their dealers with the previous 3% margin. Furthermore, these companies maintain the fuel pumps and other equipment they have supplied to their dealers at their own expense.

By contrast, when CPC undertakes repairs at a dealer’s request, the dealer is charged for the service.

The cost of spare parts for fuel pumps has also risen substantially. For example, an electronic motherboard that functions as a critical component of a fuel dispenser can currently cost close to Rs. 2 lakhs.

For a filling station with medium-level sales—approximately 20 to 30 bowsers per month—such a cost can represent around half of its monthly net profit.

Under these circumstances, there is a significant risk that the CPC dealer network could face serious deterioration, or even collapse, in the near future.

One can already observe that many CPC-affiliated filling stations have been unable to undertake even routine maintenance such as repainting their premises since the reduction in the dealer margin.

There is, however, a practical way for the senior management of CPC to determine whether a filling station can actually be operated profitably on the current Rs. 8-per-litre margin.

CPC could undertake a pilot project by taking over one or several filling stations in each district, or a representative sample of its more than 200 stations, and operating them for approximately one year using its own excess employees. The stations could then be operated exclusively on the current Rs. 8-per-litre margin.

If CPC itself is able to operate these stations profitably under those conditions, it would provide a practical basis for arguing that private dealers should also be able to do so. Conversely, if the exercise demonstrates that the model is not financially sustainable, the reality faced by dealers would become difficult to dispute.

At present, nearly 500 company-owned filling stations are also reportedly facing challenging circumstances. Their principal explanation is the prevailing geopolitical and military situation in the Middle East.

N. J. Mayadunne
President,
Anuradhapura District Fuel Dealers’ Association

(To be continued)