The Government’s decision to revise the 3% commission charged by fuel distributors has raised questions about whether consumers will see a reduction in fuel prices.

Under the current pricing mechanism, the Maximum Retail Price (MRP) of fuel is determined using a formula that includes several cost components. These include the landed cost of fuel (V1), processing costs (V2), stockholding costs (V3), taxation (V4), administrative and operational costs (V5), profit margins (V6), and cost savings from refinery production (V7). 

The 3% commission that was previously allocated to fuel distributors was factored into this calculation, meaning any reduction in this percentage should ideally be reflected in the final price paid by consumers.

The latest data from the Ceylon Petroleum Corporation (CPC) reveals that, as of December 2024, the formula-based price for octane 92 petrol stood at Rs. 308.89 per litre, while the actual retail price was Rs. 309, showing a marginal difference of just Rs. 0.11. 

In contrast, octane 95 petrol had a significant gap, with a formula-based price of Rs. 352.24 per litre against a retail price of Rs. 371, reflecting a difference of Rs. 18.76. Similar discrepancies exist for super diesel 4 Star Euro 4, which had a formula price of Rs. 311.74 per litre, but was sold at Rs. 313, a difference of Rs. 1.26. 

Additionally, kerosene was priced at Rs. 188 per litre, despite the formula suggesting a price of Rs. 182.62, indicating an overcharge of Rs. 5.38.

Tensions between distributors and Govt. 

With the Government moving to eliminate the 3% commission paid to fuel distributors, the expectation is that the savings should be passed on to consumers. However, the CPC has yet to announce a corresponding reduction in fuel prices. The removal of this cost element from the pricing formula should, in theory, reduce the overall cost per litre, particularly for high-margin fuels such as octane 95 petrol.

Fuel distributors strongly opposed the commission revision, arguing that it would impact their profitability. This led to a brief disruption in fuel distribution when the Fuel Distributors’ Association (FDA) halted fuel orders in protest last week. However, following negotiations with the Government, the distributors agreed to implement the new formula.

Cabinet Spokesperson and Minister Dr. Nalinda Jayatissa confirmed that discussions had been successful and that work would proceed under the revised commission structure. “An agreement was reached to implement the formula introduced by the CPC. Work will proceed in accordance with that agreement,” he stated at the weekly post-Cabinet press briefing.

The FDA has since resumed fuel orders but remains cautious about the long-term sustainability of the new pricing system. 

FDA Vice President Kusum Sandanayake told the media that distributors would closely monitor their invoices under the revised structure. “We will inspect the profit margins for about a week and assess whether it is practical to proceed with it or not,” he said.

Meanwhile, tensions surrounding the fuel pricing issue have not entirely subsided. Sandanayake was summoned by the Criminal Investigation Department (CID) following a complaint alleging an attempt to destabilise fuel distribution in protest against the commission reduction. 

The Police has launched an investigation into claims that a faction of fuel distributors deliberately disrupted supplies to create public unrest. However, Sandanayake denied any such intention and confirmed that distributors had suspended any further disruptive actions, choosing instead to resolve the matter through legal channels.

Another group of fuel distributors and filling station owners distanced themselves from the protests, claiming they had never ceased operations. They accused a select few distributors of exaggerating the impact of the commission revision, leading to unwarranted panic buying among motorists.

An opportunity to reduce costs 

While the Government has managed to avert a major crisis by reaching an agreement with fuel distributors, questions remain about the fairness of the fuel pricing mechanism. If the commission reduction does not translate into lower retail prices, it raises concerns about how fuel pricing decisions are made and whether consumers are being charged more than necessary.

Taxation continues to be one of the largest contributors to fuel costs. According to CPC data, as of December 2024, octane 92 petrol carried Rs. 120.65 in taxes per litre, while octane 95 petrol had a tax burden of Rs. 148.48 per litre. Auto diesel included Rs. 95.28 in taxation and super diesel 4 Star Euro 4 had Rs. 121.35 in taxes per litre. Meanwhile, kerosene had a minimal tax of just Rs. 2.24 per litre.

The CPC’s profit margin structure is another factor in the final retail price of fuel. The December 2024 pricing data showed that octane 92 petrol included a profit margin of Rs. 4.38 per litre, while octane 95 petrol had a margin of Rs. 11.49 per litre. Super diesel 4 Star Euro 4 carried a profit margin of Rs. 10.16 per litre, whereas no specific profit was applied to auto diesel.

With discussions set to continue on 18 March, the focus remains on whether the Government will take steps to ensure that the revised commission structure benefits consumers. Given the already high fuel prices and the impact on transport and essential goods, any opportunity to reduce costs should not be overlooked.

CPC to reduce fuel prices?

The CPC on Friday (7) confirmed to The Sunday Morning that a fuel price reduction was expected following the revision of the 3% commission previously granted to fuel distributors.

Speaking to The Sunday Morning, CPC Managing Director Dr. Mayura Neththikumarage stated that the price revision was inevitable since the commission had been calculated based on the final fuel price, which included Government taxes.

“There has to be a price reduction,” Dr. Neththikumarage asserted. “The 3% commission was applied as an extra cost. Now that it is being revised, fuel prices will inevitably decrease.”

He further noted that the commission had been deducted from the payments fuel distributors were required to make to the CPC. Since the percentage was applied to the final price – including taxes – it resulted in a substantial amount that contributed to the overall cost borne by consumers.

While acknowledging that fuel distributors were running a business and must earn a profit to sustain their operations, Dr. Neththikumarage stressed the need for them to exercise financial discipline and avoid unnecessary expenses.

“Distributors must cover their costs, but they also have a responsibility to optimise their operational efficiency. They cannot expect to maintain luxury expenditure at the expense of public money,” he said.

The CPC Managing Director pointed out a long-standing issue in the commission structure, where fuel distributors received a higher commission for selling premium fuels like octane 95 petrol and super diesel 4 Star Euro 4, despite the fact that the effort required to distribute these fuels was no different from what was needed for lower-grade fuels such as octane 92 petrol.

“How can they justify charging a significantly higher amount for distributing octane 95 petrol or super diesel when the service effort is the same as that for octane 92 petrol? This discrepancy was never justifiable,” he said.

Dr. Neththikumarage also responded to concerns raised by distributors about the impact of the commission revision on their profitability.

He reiterated the Government’s stance that fuel distribution should not be an avenue for undue enrichment, particularly at the cost of taxpayers. “The taxes imposed on fuel serve a critical purpose. They fund free education, healthcare, and other essential public services. A group of around 1,000 fuel distributors cannot be allowed to disproportionately benefit at the expense of the broader public,” he stated.

Regarding the status of the pricing formula, the CPC Managing Director clarified that the formula itself had already been finalised and distributors were merely being given time to review their operational costs and express any concerns. 

“There is no issue of ‘finalising’ the formula – it has already been established and is in effect. What we are doing now is allowing some time for adjustments within the framework of the formula,” he explained.

While the CPC remains open to discussions and potential refinements to the pricing mechanism, Dr. Neththikumarage stressed that any future adjustments would be made within the existing structure. 

“If any modifications are required in the future, they will be made by adjusting the numerical values within the established formula, not by altering the fundamental methodology. The Government has allowed negotiations within reasonable limits, but the pricing structure itself is not subject to change,” he concluded.