The government is developing a new automatic framework to adjust domestic fuel and electricity tariffs in line with global energy prices, Deputy Finance Minister Dr. Anil Jayantha Fernando announced on Tuesday, signalling a structural shift away from ad-hoc pricing decisions.
Speaking on April 8, the deputy minister said global fuel prices had “surged by 20% to 35%” following weeks of Middle East tensions and that the existing methodology for setting domestic tariffs had become impossible to maintain under the new volatility, NewsFirst reported. The framework is still being designed and the government has not fixed an implementation date.
Fernando said the mechanism will be engineered to minimise the impact on economically vulnerable households, although specific subsidy rules or cut-off thresholds were not detailed. The Rs. 100 per litre diesel subsidy rolled out last week and the Rs. 15 billion electricity concession for low-consumption households are expected to feed into the design of the new targeting rules.
The International Monetary Fund will be briefed on the emerging framework, Fernando said. Current fuel and electricity tariffs were set under the IMF programme’s cost-reflective pricing commitments, and any formula-based replacement will require alignment with the Fund ahead of the 5th and 6th review conclusion scheduled for April 9.
Sri Lanka has been buffeted by a dual macro shock of the Middle East energy crisis and the 44% US reciprocal tariff, forcing rapid policy recalibration. State Minister Eran Wickramaratne is due to raise both shocks at the IMF Spring Meetings in Washington from April 13–18, where the tariff framework is expected to be discussed with Fund staff.
The announcement comes a day after Lanka IOC raised its private diesel prices while state-owned Ceylon Petroleum Corporation held rates steady, highlighting the growing gap between private retailers and politically-sensitive CPC pricing that the new mechanism is expected to address.
