Financial Times

Consumers will have to brace themselves with more petrol price hikes when the fresh tripartite agreement between the government, Ceylon Petroleum Corporation (CPC) and Lanka Indian Oil Company‘s (LIOC) is signed later this month with subsidies for both LIOC and CPC being discontinued.

Industry sources said that now both entities are selling petrol below cost at Rs.10 per litre but will add this deficit when retailing after the new agreement.
“The LIOC director board has approved the new proposal and will discuss with CPC hereafter, when fixing petrol prices,” K. Ramakrishnan, Managing Director, LIOC told The Sunday Times FT.

He said that 6, 500 metric tonnes of petrol and 11, 000 metric tonnes of diesel will arrive tomorrow in Trincomalee and LIOC is expecting the second shipment somewhere around August 19.

According to a senior CPC official, the agreement under negotiation from early July was in favour of Lanka Indian Oil Company (LIOC) due to the subsidy owed being re-jigged, as well as profit margins being set at 1.5 percent. “As for us, the government hasn’t set anything down.

Here is already a policy for LIOC whereas we still have no finalised agreement. When the policy came into effect, we immediately requested a price hike to sell petrol at around Rs 100. Of course, then we all heard the Minister for Petroleum Affairs announce that there would be a price freeze for the time being,” he said.

“For this year, we are owed about Rs 12 billion in subsidy payments, but so far all we have received from the government are proposals and requests,” he noted. All that the CPC has received is a number of letters with proposals on what is going to happen, but “no one has sat down and really discussed it” which seems strange when government institutions owe CPC Rs.18-odd billion, he said. When the fine print is settled upon between the government and LIOC, the official said that with the open policy, he thought it would be unethical for LIOC to undercut CPC. “In fact, the LIOC has already been in contact in a bid to ensure there will be no such price war.”

If such a war did breakout, “the government would be obliged to subsidise the difference or we would lose the market. Even though there haven’t been any talks yet, I think we and LIOC will end up doing business on a level playing field”.

Such talks look a necessity as the marketplace is not that big for two such players to fight over.