News

News

Lanka asks India for credit to subsidise oil
Lack of funds has forced the UPFA government to ask for credit from the new Indian government to meet the fuel subsidy as world fuel prices kept climbing this week.

The Sunday Times learns that a decision by the Treasury to delay the subsidy payments to the Ceylon Petroleum Corporation has already threatened the maintenance of current fuel prices.

The new creditline the government has sought to continue the petrol, diesla and kerosene subsidy is expected to be in the region of Rs. 300 m. monthly. Already, upto March this year, Sri Lanka owes the Indian government Rs. 650 million for the subsidy the previous government did not pay.

According to reports, the new loan from the Indian government will be charged in US dollar terms at LIBOR plus 1 per cent paid over ten years. The UPFA government has also abandoned the former regime's policy of reviewing oil prices on a monthly basis and making changes on the basis of the changing international prices, an official said.

With the provincial elections coming up in July, the UPFA government is unlikely to increase fuel prices, because of the possible political fallout. An Indian High Commission official confirmed that the Sri Lanka government had made a request for credit to bridge the subsidy gap.

Commercial Secretary V. Ashok said the request had been forwarded to the Indian government, but the response might take time as the new Manmohan Singh administration took office only yesterday.

"The amount of the subsidy has not yet been calculated as this would need to be worked out on the basis of the subsidy now given as well as the period the subsidy is required for," he said.

Mr. Ashok said the Indo-Sri Lanka creditline was only for commodity goods and in any event, it was almost used up. Thus any creditline for oil would have to be new one.

India has a major stake in Sri Lanka's oil market with the Indian Oil Company (IOC) running hundreds of filling stations and maintaining oil deposit farms in Trincomalee.

The decision not to adjust fuel prices according to international market prices would cost the Treasury more than Rs. 3000 million a year. Within the past two weeks, international fuel prices have soared to record heights beyond the 41 dollar mark, forcing even some international airlines to impose fuel surcharges for passengers and cargo.

Top

Back to News