Mathematics of fuel pricing
View(s):Sri Lanka is implementing a fuel pricing formula to determine the price of petrol and diesel through a special committee of senior public officials ending the earlier practice of fixing the prices in an ad hoc manner by the government.
A special committee headed by the Deputy Secretary to the Treasury and representatives of the President, Prime Minister, Ministry of Petroleum Resources, Ministry of Public Enterprises and Fiscal Policy Department has been entrusted with this task.
Business Times reliably learnt that the Singaporean benchmark has been chosen as one option as Sri Lanka’s fuel is being sourced from that country while the actual weighted average cost of importation of fuel at the time of landing will also be considered.
The fuel pricing model is mainly based on Singapore FOB price (US$/bbl) + Freight/loss/insurance (US$/bbl) which is the CIF price ($/bbl) and currency exchange rate (Rs/ $)/litres per bbl equivalent to CIF price (Rs /litre).
One barrel of crude oil contains about 160 litres of oil priced in US dollars. To calculate price, US dollars are converted to Sri Lankan rupees and then divided by 160.
The landed cost (jetty pipeline charges, +port development levy +LC charge ), taxes (excise duty, customs duty, and other levies including VAT) , CPC/ LIOC finance charges, CPC/, LIOC wholesale costs, CPC /LIOC margin, marketing/ distribution costs and dealer discounts are the other factors contributing for the determination of consumer retail price.
A litre of petrol when unloaded at the harbour costs only Rs. 78.43, they said adding that the total tax levied by the government is Rs. 60.63. The total is Rs. 139.06 (78.43 + 60.63).
A litre of petrol is sold for Rs.145. Therefore the additional profit for the government was Rs. 5.94, they pointed out.
A litre of diesel is unloaded at Rs. 83.70. The tax is Rs. 32.14. The total is Rs. 115.84 (83.70 + 32.14). The litre of diesel is sold at Rs.118. The additional profit was Rs. 2.16 from a litre of diesel, they claimed.
The Government was compelled to use this additional profit to offset the losses of CPC which stood at Rs.217 billion at the end of 2017 and it lost a further Rs.18 billion up to April 2018 due to selling products below cost.