Widest difference in fuel pricing formula since LIOC’s entry in 2003

By Shamindra Ferdinando

Former Energy Minister Udaya Gammanpila says Lanka-India Oil Company (LIOC) has effectively taken itself out from the local petroleum market and is pricing its products in line with economic realities.

The LIOC has achieved that objective by keeping its diesel and petrol prices (per litre) Rs 77 and 92 , respectively, higher than those of Petroleum Corporation (CPC), the leader of the Pivithuru Hela Urimaya says.

Having increased diesel and petrol prices on 06 Feb. and 25 Feb, 202, causing a price difference of Rs. 17 and Rs 27, per litre of diesel and petrol respectively, the LIOC has widen that margin, the widest since its entry into the Sri Lankan market in 2003.

President Gotabaya Rajapaksa removed Gammanpila from ministerial portfolio on 03 March within 24 hours after a group of dissident constituents of the ruling Sri Lanka Podujana Peramuna (SLPP)) unveiled an alternative economic plan.

Responding to The Island queries, lawmaker Gammanpila said that the LIOC couldn’t be faulted for seeking to curtail losses. In terms of an agreement Sri Lanka entered into with India in respect of the LIOC’s entry into local market, the Indian enterprise had the right to increase its prices unless Sri Lanka absorbed the losses.

Attroney-at-law Gammanpila emphasized that current Ceypetco pricing formula didn’t reflect crude oil prices in the world market, which were rising even higher mainly as a result of the war in Ukraine.

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

MP Gammanpila said that the latest hike would make it impossible for the vast majority of people to pump diesel or petrol at LIOC service stations. However, those living in some areas would experience difficulties as they were serviced by LIOC. In terms of the 2003 agreement, LIOC took over one third of service stations at that time managed by the CPC. At the time of the agreement, the countrywide CPC network comprised 300 service stations. Today, LIOC operates 211 service stations.

LIOC blamed rising international prices due to a variety of reasons, including the Russian invasion of Ukraine for increasing its pricing formula for increases announced on Feb 06 and Feb 24 though the latest was blamed on what the Indian enterprise called a significant depreciation of the Lankan Rupee against the USD.

In a statement issued late Thursday night, the LIOC quoted its Managing Director as having said that the depreciation of the Rupee twice in a span of seven days by Rs 57 against USD has directly impacted the landed cost of Gasoil and Gasoline making them dearer by an equivalent amount per litre. Oil and gas prices are also surging as western countries respond to Moscow’s invasion with numerous sanctions to isolate Russia and cut it off from global oil markets. Our current losses are exorbitantly high considering current international prices leaving no other option but to increase the prices of Gasoil and Gasoline. However, it is a painful reality that even after this price increase, there would still be heavy losses at the prevailing international prices.”

LIOC MD Gupta emphasized that LIOC did not receive any subsidy from the Government of Sri Lanka and its losses were calculated based on actual landed cost of the product after considering payment of applicable duties, taxes and other statutory levies including handling charges.

Former Minister Gammanpila said that the country lacked the wherewithal to meet the economic crisis. “There is no point in denying that fact. The sacking of Wimal Weerawansa and Udaya Gammanpila wouldn’t make a difference at all, the PHU leader said, urging the government to work out a proper strategy at least now.

Lawmaker Gammanpila recalled his efforts to establish a special fund to cushion the impact in case of steep increase in fuel prices. The former Minister alleged that his proposal that had been made in March 2021 didn’t find favour with the Finance Ministry. Even after a cabinet sub-committee endorsed the proposal in Oct. 2021, the Finance Ministry simply ignored it, the MP alleged.

Gammanpila said that regardless of repeated assurances given by the government regarding the normalization of fuel supply, the LIOC increase would bring the entire Ceypetco distribution under tremendous pressure. The former Minister pointed out that the LIOC sales volumes would drop sharply to such an extent it would no longer matter.