Financial Times

Comparison of Sri Lanka and world retail fuel prices
By Dinesh Ranasinghe

For the last few months petrol and diesel prices have surged tremendously and have piled miseries on industries, drastically affecting cost of living and inflation. Many blame the government for the escalating fuel prices rather than understanding Sri Lanka is just a tiny spec in the global economy and a price-taker in the global petroleum market.

These pressures are not only felt in Sri Lanka but also throughout the economies all over the world (except for a few oil producing countries). As a result people have become more conscious about how much is paid at the station to fill their tank.

The table in this feature illustrates fuel prices in different countries and a unique indicator to measure price of fuel in relation to income levels. Relative Diesel Purchasing Power Indicator (RDPPI) is calculated by means of dividing 2007 per capita GDP (as published by IMF) by the cost of a litre of diesel and then indexing the results against that of Sri Lanka. Through this it is possible to compare Sri Lanka’s status with other nations since the fuel prices are compared to the average income (i.e. per capita GDP) and shown relative to Sri Lanka’s ratio.

It should be noted that diesel prices are taken to calculate the RDPPI as diesel is mainly used for public transportation and haulage. Further, in this study petrol and diesel prices may vary slightly from the actual due to petroleum market volatility and exchange rate differences.

The higher the index of a nation, the better the position of an average person in that nation compared to a typical Sri Lankan. That is, higher the index, lesser the impact of increasing fuel (diesel) prices on an ordinary person / cost of living. It should be highlighted that despite lower prices in South Asian countries Sri Lanka is in a better position, yet lagging far behind the rest of the Asian nations. This is due to the higher per capita GDP of USD 1510 Sri Lanka is ahead of its South Asian counterparts (Per capita GDP: India USD 980, Bangladesh USD 455, Pakistan USD 900).

Petroleum prices in Sri Lanka, although having hit a record high level, are actually much lower than in many wealthy countries/cities. People in countries, for example Norway are paying nearly three times more than Sri Lankans. The main factors in price disparities between countries are government policies, transportation/freight costs and local processing / refining costs. For instance, many European nations tax petrol and diesel heavily, with taxes making up as much as 70% of the cost of a litre of petrol/diesel. In petroleum producing nations such as Venezuela and Saudi Arabia, oil is produced and refined by government owned entities and petrol is generally priced below cost to benefit its citizens. For instance, in Venezuela a price of a litre of petrol is as less as 4 US cents, which is approximately about four rupees (which is much lesser than what we pay for a bottle of water in Colombo!).

Another important facet to gauge the relative cost of fuel would be to ascertain how many litres it would take to commute a certain distance, and then comparing it with eg- vehicle type/capacity) across countries, specially India, Pakistan and Bangladesh to understand the mileage per litre and its cost. However, figures for Sri Lanka and other Asian countries will not be pretty due to high per mileage cost as a consequence of congestion in urban roads.

A majority would rather let fuel prices fluctuate based on supply and demand than having the government regulate prices or ration supplies. Whilst we envy Venezuelans, we should be grateful we are no-way near Norway. Regardless of all these inequalities amongst nations, this is something for all to ponder at the filling station.

  • (The writer is an analyst abroad)
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