Is there a solution?

There is a great mismatch in the spend between Sri Lanka’s total imports and fuel imports.  According to available data, we have spent 3,269 million US dollars on average annually on fuel imports, between 2014 and 2018.  This is as opposed to the 3,394 million US dollars spent on the country’s total imports during the same period, for other essential items like food and beverage, dairy products and medicine.  What this means is that Sri Lanka spends more on fuel than food, medicine, and any other essential product.  In a nutshell, our fuel bill was almost the same as what we spend to import everything else.  What is salient to note is that this huge spend on fuel was at a time when a barrel of oil was at US dollars 50 — things have changed quite a bit from then.

Fuel import bill unsustainable

With the oil price increasing to US dollars 100/- per barrel, our fuel bill automatically doubles. This is entirely unsustainable, especially in light of the country’s current economic woes.

The question then, is how do we reduce this colossal amount to at least some degree?  Senior Professor Amal S. Kumarage, Department of Transport and Logistics, University of Moratuwa says it is possible if one is to take a closer look at our road transport sector, which takes up approximately 63% of the total fuel import bill. “Those taking mitigatory steps to correct the current economic crisis, will have to figure out ways to reduce fuel consumption in road transport by at least 25%. Whilst it is a given that transport is the linchpin in developing the local economy, the country needs to rationalise the sector, to help us get out of this situation we are now facing.”  He says what we need now is a paradigm shift, especially since Sri Lanka’s petrol price at the pump is still lower than in countries like India, Bangladesh and Nepal, whose per capita income is also 2-3 times lower than ours.

Subsidised fuel no longer

an advantage

The Moratuwa University Don says, there is simply no advantage in providing subsidies for fuel, while consumption remains so high, adding that in any case, it is not the poor who benefit from these subsidies, because the higher percentage of fuel is used by privately owned vehicles.  “While fuel imports, unlike other goods, should not be restricted or rationed because it is necessary for production, it is also necessary for local prices to be pegged to world market prices.  However, it should be done with a reasonable tax component that would discourage consumption and encourage alternate use. Many countries have successfully implemented this tax to develop and promote less fuel consumption without reducing productivity or convenience.  Further, in the current Sri Lankan context, it will allow more funds to be allocated for goods that are vital for daily living.”

Concessionary permits: loss for country, advantage to affluent 

While annual car imports keep adding to our fuel bill, another issue is the concessionary permit system provided by the government to certain state officials to import cars with tax benefits.    According to statistics, the concessionary permit system is a huge loss annually to the country. “The loss from these concessionary imports of private cars to the Treasury averages Rs. 94 billion per annum.  This figure is almost equal to the LKR 97 billion per annum the Treasury gathers from all car imports, which actually makes the taxation process a pointless exercise.   Furthermore, because of the tax concession, permit holders tend to go for more expensive vehicles in consideration of the resale value and more often than not, these expensive choices are heavy on fuel consumption.

Need to review transport sector

8% of Sri Lanka’s total import bill has been for road vehicles, and another 10% spent on fuelling them at $50 a barrel (Sri Lanka Customs, Import Data, 2022) and a further 3-4% was spent on road construction. At current oil prices use of road vehicles will take up more than half of our total import cost for consumables. Given that, reviewing the transport sector sooner rather than later is vital and would give Sri Lanka a much needed way out.  A streamlined, manageable transport and logistics sector would be a driver for Sri Lanka’s economic revival and long-term regeneration.  While it is necessary to find a solution to the immediate issues faced by the people, a sustainable long term plan needs to be put in place to avoid the heavy dollar expenditure of our road transportation and highway network system.

Potential long term plan

Therefore, if rationing fuel is not the answer, how do we manage our fuel bill more effectively in the present?   The answer, Professor Kumarage says, is to have less cars on the road by improving public transport.  “Sri Lanka’s current public transport carries 50% of trips using just 16% of the fuel used for road passenger transport. Less cars on the road means less congestion, less pollution and less fuel consumption.  How we travel and purchase goods has changed with the pandemic situation and with the increased use of cab and delivery services, solutions should also be looked at in these areas. Encouraging short distance deliveries on cycles instead of motorcycles should be considered. Another way we can reduce cars on the road is by making ride sharing systems compulsory.  That will reduce private vehicle usage and increase reliable online services to eliminate unproductive physical travel.  Introducing a system where cars are allowed on the roads on alternate days, imposing a peak-period minimum passenger occupancy in selected traffic attracting areas such as Fort, Battaramulla and Nawam Mawatha, incentivising company transport services can all help in reducing road traffic.”  To start off, Sri Lanka like some other countries can introduce a car free day as a symbol of our policy change, says the professor.

Policy readjustments such as scrapping the concessionary vehicle permit system, allowing concessions only for electric vehicles, modernising our public transport to match the 21st century user, and implementing a moratorium on our highway development system would all work to make a significant impact on reducing the import bill and saving our valuable dollars.