Upon the introduction of the current fuel price formula, the administration committed to ensuring that any reductions in international market prices would be reflected in lowered costs for consumers while simultaneously preventing financial losses for the State-run Ceylon Petroleum Corporation (CPC). The formula’s intended function was to align fuel prices with international market fluctuations.
However, an analysis of the data since its implementation reveals a consistent upward trend in fuel prices, with occasional and minimal instances of reduction. This discrepancy has prompted concerns among the public.
With the most recent fuel price revision, consumers are now facing a cost of Rs. 371 for a litre of octane 92 petrol. Notably, the price of octane 92 petrol (considered as a benchmark in comparing prices in this article) has increased by Rs. 25 for the months of January and February this year.
These developments raise questions about the effectiveness of the fuel price formula in delivering on its initial promises, stirring public apprehension regarding the practical impact of the pricing mechanism and its alignment with the administration’s stated objectives.
History of formulae
The first-ever fuel price formula was introduced in 2002. Prices underwent 11 revisions in 2002, with the initial adjustment occurring on 25 February 2002, involving a reduction of Rs. 1 in the price of a litre of octane 92 petrol. In December 2001, octane 92 petrol was priced at Rs. 50. Following the revision in February 2002, prices were reduced to Rs. 49. However, subsequent changes in administration led to the abandonment of the 2002 formula.
In 2018, a revised formula was introduced by the then Government, lasting for approximately one year until the newly-elected administration in 2019 chose to discontinue its application. In 2018 and 2019, fuel prices were revised 11 and eight times, respectively. Despite fluctuations between these revisions, the price of octane 92 petrol remained at Rs. 137 from May 2018 until the last revision in 2019.
In 2022, the Government implemented another fuel pricing mechanism, currently operational. A seven-member committee, comprising officials from the Ministry of Power and Energy, Ministry of Finance, Central Bank of Sri Lanka, CPC, Lanka IOC, Consumer Affairs Authority, and a representative selected by the Secretary of the Ministry of Power and Energy, was entrusted with determining fuel prices.
Since the introduction of the new price formula, fuel prices have been revised 24 times. Notably, in May 2022, the price of octane 92 petrol increased from Rs. 373 to Rs. 450 and on 17 July 2022, it was again adjusted to Rs. 450.
Subsequent revisions in August, October, November, and December 2022 were as Rs. 450, Rs. 450, Rs. 410, and Rs. 370, respectively. From January to December 2023, prices were revised as Rs. 370, Rs. 400, Rs. 400, Rs. 340, Rs. 333, Rs. 318, Rs. 328, Rs. 348, Rs. 361, Rs. 365, Rs. 356, and Rs. 346, respectively.
Despite successive implementations of pricing formulas, the prevailing trend since their introduction has seen an upward trajectory in fuel prices, with few instances of marginal reductions experienced by the public.
Local vs. international prices
Sri Lanka, a major consumer of petroleum products, bases its purchases on the Singapore Platts prices. The Sunday Morning’s assessment of last year’s Platts rates offers insights into the economic implications and strategic aspects of the nation’s energy procurement.
According to data from the Singapore Exchange (SGX), the prices of SGX Platts Gasoil FOB Singapore Index exhibited dynamic fluctuations throughout 2023. In April 2023, the index recorded a value of $ 90.57 per barrel. Over the subsequent months, the prices demonstrated a visible upward trajectory, culminating in the highest point observed in September 2023, at $ 113.19 per barrel.
By the end of December 2023, the index settled at $ 97.05 per barrel, reflecting a shift from the peak witnessed earlier in the year. This indicated a period of relative stabilisation in the market.
As revealed in the index, on 1 February, the cost of a gasoil barrel was documented at $ 105.46. However, within the span of a week, by 7 February, the price experienced a decrease, reaching $ 102.88 per barrel. When comparing local fuel prices to international ones, it is apparent that the domestic prices consistently remain much higher.
This noticeable difference is largely attributed to various additional components that are factored into the landed cost, leading to a significant increase in local fuel prices. These extra elements, including taxes, stockholding costs, and other factors, contribute to the observed gap between what consumers pay locally and the prices based on international procurement.
As of 30 September 2023, the CPC estimated the pricing of imported refined petroleum products. For 92 petrol, the landed cost per litre was Rs. 232.82, with a processing cost of Rs. 17.89. Additional components included stock holding cost (Rs. 4.75), taxation (Rs. 104.02), other costs (2% of the total cost per litre exclusive of taxes and dealer margin to cover administrative expenses, depreciation cost, personnel cost, operational cost, and other cost elements and depreciation: Rs. 4.89), profit margin (4% of the total cost: Rs. 14.57), and a cost saving from refinery production (Rs. 13.91).
As of September, the formula-based price was Rs. 364.99 and the retail price per litre was Rs. 361.
Similarly, in January 2024, the landed cost per litre decreased to Rs. 194.34. According to the formula, the price was Rs. 371.56, incorporating a processing cost of Rs. 19.34, stockholding cost of Rs. 3.20, taxation of Rs. 130.69, and other costs of Rs. 4.12, with a profit margin of Rs. 11.81 added to the landed cost when determining the prices as per the formula.
Speaking to The Sunday Morning, Petroleum Common Workers’ Union (CPCWU) President Ashoka Ranwala said the objective of the fuel price formula was not currently being served as the formula was not transparent. Also, he said that countries like India and China were directly purchasing fuel from low cost regions such as Russia despite the ongoing restrictions.
Furthermore, Energy Trade Union (ETU) Convenor Ananda Palitha said that even though Sri Lanka had three companies, including CPC, fuel prices were only increasing. “There is no competition as we can see,” he stressed, while claiming that prices could have been reduced drastically if the Government eased its taxes on fuel.
Attempts made by The Sunday Morning to contact Power and Energy Ministry Secretary Sulakshana Jayawardena were futile.
Meanwhile, responding to a question, a senior official of the CPC said that the fuel price formula was decided by the ministry and the CPC was only a player among three in the local market.
Fuel price formula components
MRP = V1+V2+V3+V4+V5+V6+V7
V1: Landed cost per litre (Rs.)
V2: Processing cost per litre (Rs.)
V3: Stock holding cost per litre (Rs.)
V4: Taxation per litre (Rs.)
V5: Other costs (2% of total cost per litre exclusive of taxes and dealer margin. This is to cover administrative expenses, personnel cost, and operational cost, and other cost elements and depreciation)
V6: Profit margin (4% of the total cost per litre)
V7: Cost saving from the refinery production per litre (Rs.)