By Udaya P Gammanpila Courtesy Ceylon Today

The Government constantly increases prices of petrol and diesel every month. When the price of a barrel of crude oil is US$ 68, the Government increased the price of petrol to Rs 149 per litre.

It claims that increases are based on the so-called fuel price formula.  Mysteriously, nobody knows the formula except the Minister of Finance.

Minister Mahinda Samarasinghe publicly admitted that he was not aware of the formula. It means the formula has not been presented to or approved by Cabinet. Although, we have requested in writing to inform us of the formula and the basis, Ministry of Finance is yet to respond to us.

Why is the Ministry so reluctant to disclose the formula? Two reasons can be attributed to this behaviour.

Firstly, there truly may not be a formula, although the Government claims that prices were increased based on a formula. Alternatively, the formula is so irrational that it cannot be disclosed. If there is a formula, it must be irrational because recent price increases do not correspond to price fluctuations in the world market.

Election Manifesto

President Sirisena made two significant pledges in respect of fuel in Chapter 10 of his Election Manifesto. Firstly, he promised to remove all taxes on fuel which would amount to Rs 40 billion. It has never been fulfilled. In fact, we explained during the election campaign that the pledge was not practical from an economic perspective because government can collect a sizeable tax revenue only from taxes on goods with inelastic demand.

This means products for which consumers do not react to price fluctuations since such products are essential in nature and have no alternatives.  Fuel varieties belong to this rare group of goods.

The Government’s economic pundits have learnt this simple lesson only after securing power.

His second pledge was to introduce a price formula for fuel. We have repeatedly questioned Petroleum Ministers from 2015 to 2017 as to why they failed to introduce the price formula. Although they avoided answering the question in Parliament by making irrelevant refences, there was a hidden motive.

Lowest prices

The fuel world market witnessed the lowest prices in the last 15 years, during the last three years. As a result, the Ceylon Petroleum Corporation earned huge profits which were later transferred to the Treasury. They did not want to lose this massive income by reducing fuel prices as promised.

In fact, the Petroleum Minister presented a Cabinet Paper to introduce the price formula on 30.12.2015 having Reference No 15/2038/746/011.

According to the Organization of Petroleum Exporting Countries (OPEC), the highest oil prices were recorded in 2011 to 2013. The average annual price of a crude oil barrel in 2011, 2012 and 2013 were $107, $109 and $106 respectively.

That is why Sri Lanka witnessed higher retail prices for diesel and petrol during this period. It came down to $49 in 2015 and further decreased to $41 in 2016. Average annual price of a crude oil barrel in 2017 was $53.

In other words, crude oil prices during the first three years of this Government were approximately 60% less than the prices which prevailed during the last three years of the Rajapaksa Government.

The Price of a petrol litre was Rs 150 at end 2014.  In the light of above, it should have been reduced to Rs 60 for the last three years. After reducing the price by just Rs 33 to Rs 117, it has now been increased to Rs 149.

Adjusting retail prices of fuel based on world market prices is a policy adopted by developed nations which have mature economies. Some countries adjust prices on a daily basis when others do it monthly or weekly.

eople of these nations can absorb the shock of sudden increases of fuel prices since all of them receive a guaranteed minimum monthly income. On the other hand, developing nations have to avoid to such shocks considering the plight of the low income segment of the country in addition to vulnerable small-scale industries.

In this backdrop, the Rajapaksa Administration never introduced a price formula. Whenever the price was on an upward trend, the government sold fuel at a concessionary fixed price absorbing the losses.

When the price was in decline, the government did not reduce retail prices till accumulated losses incurred were settled when the price was on an upward trend.  Price stability was a key feature in the Rajapaksa Government. Hence, the highest retail price for petrol during the Rajapaksa Government was Rs 162.

The present Government has earned a huge income by way of taxes and profits by selling fuel at excessively higher prices.

World market

The highest ever crude oil price was recorded in the world market in June 2008 when President Rajapaksa was in power. It was $161 per barrel. If the present Government was in power in June 2008, the price of a petrol litre would have been Rs 353 for sure.  Fortunately, people had not thought of Yahapalanaya at that time.

Fuel is the lifeblood of the economy.

Hence, frequent increases in fuel prices have significant impacts on every aspect of  life.  Increase in bus and train fares would be the direct result of a fuel price hike.

The next victim will be electricity, since diesel power plants still contribute a significant share of electricity production.  Additionally, manufacturing and transport cost of every product will be increased resulting in a higher cost of living.

In the light of the above, Sri Lankan citizens have the right to know why they suffer so much at a time when there is an insignificant upward movement of fuel prices in the world market.

Hence, the Government should immediately disclose the fuel price formula, if there is any.