The government is considering a subsidy of between Rs. 80 and Rs. 100 on every litre of diesel from the end of this month, Energy Minister Anura Karunathilaka has said.
The minister said data on the losses incurred by fuel retailers — including the state-run Ceylon Petroleum Corporation (CPC) — has been requested, and the exact subsidy will be fixed only after that data is analysed, NewsFirst reported.
Fuel prices are due for their monthly revision at the end of September. The government’s stated aim is to hold current prices and avoid an increase in the price of diesel in particular.
What is driving it
Crude oil is trading at around US$92.41 a barrel on the US WTI market and US$104.03 on the British Brent market, levels that have pushed the cost-recovery price of diesel well above the pump price.
The figure under discussion tracks the relief the state provided earlier this year. When global prices surged in April and May, the government paid a subsidy of Rs. 100 per litre on diesel and Rs. 20 per litre on petrol.
The legal constraint
Any subsidy has to be paid to every operator, not just the CPC. Speaking in Parliament on 22 September, Karunathilaka said agreements signed with private distributors in 2022 require equal treatment, so the state cannot relieve the CPC while excluding Lanka IOC, Sinopec or RM Parks.
“Because equal treatment must be granted, we cannot provide subsidies to the CPC alone while withholding them from LIOC. If we do, they will have to pursue legal action,” he told the House, according to EconomyNext. Under those agreements each operator is entitled to a 4% margin over its landing cost, and if a price cap falls below that, the Treasury is obliged to cover the deficit.
Private distributors have reported losses of up to Rs. 163 a litre on diesel and cut supply, while the President said earlier this month that October prices must rise under the pricing formula with a subsidy absorbing part of the increase.
