Much awaited fuel pricing formula on the cards
View(s):Sri Lanka is set to introduce a cost-reflective transparent fuel pricing, based on international market prices soon.
In this much-delayed fuel pricing formula, prices should change with international market prices similar to many other commodities people consume, a senior official of the CPC said.
There is also a strong case to gradually introduce corrective taxes to both petrol and diesel to account for externalities, this can be done with increments of Rs. 0.5 a litre per month so that the consumer will not feel the effect of these revisions, he pointed out.
Petrol is underpriced in Sri Lanka, and at the very least it must be fully cost-reflective of all taxes paid. There remains a case to further increase prices to fully reflect all externalities especially congestion and traffic accidents, JB Securities Pvt Ltd, a Colombo-based research house and an equity brokerage, revealed in a media release.
Further, with more fuel-efficient vehicles due to hybrids and small engines the tax intensity per unit of road mileage has gone down over the years.
According to JB Securities, diesel is significantly underpriced, enjoys a post-tax subsidy and there are no corrective taxes applied although consumption is more than 50 per cent of petrol.
On a per litre basis petrol retails at Rs. 117 of which the taxes are approximately Rs. 56.50. The country’s motorists consume around 130 million litres a month, even at reduced world market prices the loss to the industry due to under recovery of taxes is Rs. 1.04 billion a month. If the current trend holds it works out to Rs. 12.48 billion a year.
On a per litre basis diesel retails at Rs. 95, the taxes are approximately Rs. 29.50. One month ago based on spot gas oil prices the loss was Rs. 6.70; it has now reduced to Rs. 0.45. The country consumes around 200 million litres a month and at the current reduced world market prices the loss to the industry due to under recovery of taxes is Rs. 90 million a month.
Petroleum products are imported, if it is not priced appropriately demand will be more than what it should be, for example in 2016 petrol volumes grew 19 per cent and diesel volumes grew 16 per cent whilst real total consumption grew only 0.73 per cent
“Leaving aside the lack of good public transport that accentuates the demand for private vehicle, under pricing leads to excess consumption creating massive traffic jams on the roads, pressures the balance of payment and results in spending much needed foreign exchange to oil exporting countries,” JB securities said.