Fuel Prices: President Details Costs, Taxes, and Market Risks

COLOMBO (News 1st); President Anura Kumara Dissanayake has outlined the economic and global factors influencing fuel prices in Sri Lanka, explaining the pricing formula while signalling that a decision on fuel prices will be taken in the near future.

Addressing the issue, the President explained that fuel prices are directly linked to movements in the global oil market. He said that for every one-dollar increase in global oil prices, domestic fuel prices rise by two rupees, describing this as the basic formula used in price calculations.

He pointed out that the exchange rate has risen from 92.90 rupees to 139 rupees to the dollar, an increase of 49 rupees. In the case of diesel, he said the increase has been 84 rupees. When these increases are applied through the pricing formula, the resulting pressure on domestic fuel prices becomes clear.

President Dissanayake also highlighted a sharp rise in premiums under fuel supply arrangements. 

Under long-term tenders, the premium had previously stood at 2.5 dollars, but has now surged to 40 dollars. He explained that this increase is driven by suppliers demanding security guarantees amid global uncertainty.

As a result, global fuel prices have risen by between 6 percent and 50 percent. He noted that some countries have increased fuel prices by as little as 6 percent, while others have seen increases of up to 50 percent. 

In Sri Lanka, fuel prices have been increased by 8 percent, with the minimum increase of 6 percent seen mainly in oil-producing countries.

The President said that if the Ceylon Petroleum Corporation alone operated the market, losses could be absorbed temporarily and balanced with profits at a later stage. 

However, he noted that 43 percent of Sri Lanka’s fuel market is operated by private companies.

These companies, he said, have made it clear that they will not import fuel if they are unable to sell it at prevailing market prices, a position he described as reasonable.

According to their calculations, private suppliers would face losses of around 55 million dollars per shipment if prices are not aligned. This reality, he said, means fuel pricing decisions must be addressed quickly and carefully.

President Dissanayake warned that a wide price gap between CPC fuel prices and private sector prices, in the range of 100 to 150 rupees per litre, would discourage private suppliers from operating. 

Such a gap, he said, would result in consumers queuing for six to seven hours at CPC fuel stations, creating further disruption. Reducing this gap remains a key objective.

He also drew attention to the broader economic impact, noting that fuel taxes generate around 20 billion rupees in revenue each month, amounting to 240 billion rupees last year.

The government is therefore considering whether limited relief can be provided through tax adjustments.

While acknowledging concerns that tax relief would disproportionately benefit higher fuel consumers, the President said both International Monetary Fund guidelines and government policy emphasise targeted subsidies. 

However, he explained that targeting support is complex due to the large informal sector that relies on fuel for daily livelihoods, making precise identification difficult.

President Dissanayake said all these factors are being considered together as the government prepares to take its next decision on fuel prices.

“Based on this assessment, we will take the next decision on fuel prices,” he said, adding that the decision needs to be made very soon.