The Energy Ministry is seeking legal advice on the long-term agreements that govern Sri Lanka’s private fuel retailers, after two of them cut the volumes they distribute, Ceylon Petroleum Corporation Chairman D. J. Rajakaruna said.

The agreements run for 20 years and contain provisions on a ceiling price and the pricing formula that applies to the operators, Rajakaruna said, as reported by the Daily Mirror.

Two features of those contracts are now under review. They allow private operators to revise certain fuel prices themselves in order to avoid losses — and they may oblige the Government or the Ministry to compensate the operators if the prices they are instructed to charge leave them out of pocket.

Why the queues appeared

Rajakaruna said there is no fuel shortage or supply problem in the country, and that the CPC holds enough stock to keep distribution uninterrupted well into the middle of next year.

The queues reported at some filling stations were instead caused by distribution constraints at private companies, he said. Sinopec and RM Parks had reduced their distribution volumes because they were losing money under the current pricing structure, which produced temporary disruption in areas where private stations are the main — sometimes the only — source of fuel.

The Ministry, the CPC and the operators have since met. The companies were instructed to prioritise supply to the areas where shortages had been reported, Rajakaruna said, despite the lower profit margins involved. The CPC also plans to open 75 additional filling stations to widen its own distribution reach.

The self-revision clause is not hypothetical. Rajakaruna said it is what allowed private operators to adjust what they charge for Octane 95 petrol and Super Diesel — the mechanism behind the separate Octane 95 price revisions by Lanka IOC and Sinopec earlier this month.

The gap the state is absorbing

Rajakaruna put a number on the pressure. World crude and refined product prices have risen sharply since February — by an estimated 80 to 90 per cent in some cases — while local pump prices have gone up by only about 40 to 43 per cent, because the Government absorbed a large share of the difference to shield consumers.

That is the same gap, measured from the other side, that Verité Research described a day earlier: even after the November increases, auto diesel was still selling Rs. 62 a litre below its cost-recovery price and Petrol 92 Rs. 57 below. Rajakaruna’s account explains who has been carrying that shortfall, and his remarks indicate the private retailers have declined to carry their share of it.

He added that international markets had shown some signs of stabilising amid developments in conflict-affected regions, and said any benefit from a fall in world prices would be passed to consumers at the earliest opportunity.

Context

Private operators cutting supply is not new. In early October, the CPC was forced to raise its own distribution volumes after Lanka IOC, Sinopec and RM Parks each reduced deliveries, a round of cuts that also produced queues.

Not reported

The filing does not say which law firm or officer is providing the legal advice, when it is expected, or what the Government would do if the agreements are found to oblige it to compensate the operators. It does not quantify the compensation potentially at stake, name the other parties to the 20-year agreements beyond Sinopec and RM Parks, or say when those agreements were signed. No comment from Sinopec or RM Parks is reported.

Sources: Daily Mirror.