CPC to initiate new formula for oil prices

The Ceylon Petroleum Corporation is to introduce a formula which would determine the increase or decrease of fuel prices – a formula that is different from one implemented during the UNF regime of 2002-2004. For this year alone the government has raised the price of fuel seven times. The formula will be based on international oil price fluctuations and the average exchange rate for the month, Ceylon Petroleum Corporation Chairman Asantha de Mel said in an interview with The Sunday Times.

He also dismissed opposition claims that world crude oil prices were lower than what the government pays to purchase it. He said Sri Lanka bought an equal balance of crude and refined products. He pointed out that refined oil was more expensive than crude oil– which was what the critics were talking about.

Listing figures, he said in June the average crude oil price was US$69.82 per barrel while refined oil was - petrol $85.54 per barrel, diesel $88.14 per barrel and kerosene $87.23 per barrel.“We will go for refinery expansion which will enable us to increase our capacity from 50,000 barrels to at least 100,000 a day and cut down the import of refined fuel,” Mr. de Mel said.

He said the government had withdrawn the subsidy granted to CPC which has led to money-printing by the Central Bank to provide the subsidy. Mr. de Mel said evidence showed that the inflationary impact of a fuel price hike was much lower than when it was ‘absorbed’ by the state by way of a subsidy. The impact was not only on the domestic front but also on the external, with depleting foreign reserves and pressure on the currency. Rs. 45.8 billion had been granted by the government as fuel subsidies from 2004 to 2006 while the CPC had paid Rs. 102.5 billion as taxes during the same period he said.

He also said the CPC plans to charter two ships for its bunkering services to tap the 300 to 400 ships that ply past Hambantota on a daily basis, to supply navigation fuel. Measures will also be taken to increase transportation of oil by train from 28 per cent of the total oil consumption to 80 per cent, thereby reducing the cost by 1/5th on road transport.

The upgrading of an oil pipe line from Muthurajawela is now under way to bring down the transport costs of fuel. The CPC is also planning to use the LPG bottling plant of Mundo gas to enter the domestic gas market next year. The corporation is to double its liquid petroleum gas production in the next few months by upgrading its existing facilities. It will continue oil hedging in which the corporation earned over $2 million through this process earlier.

Earnings through hedging was in the region of $2.2 million from which a separate fund has been set up using $1.5 million of this money, the CPC chairman said. Mr. de Mel said the corporation was considering granting some concessions to three wheeler owners if they were willing to fix meters and charge a reasonable fare from passengers.