ECONOMYNEXT – Sri Lanka’s state-owned Ceylon Petroleum Corporation lost 57 billion rupees through May 2021 after prices were held firm and also due to foreign exchange losses on dollar loans, said Petroleum Minister Udaya Gammanpila.
The current Sri Lankan government has given up “Saubhagyaye Dekma” as part of its manifesto and thrown overboard a pricing formula that aimed to balance input and output costs.
Retail prices were hiked last month after holding above world prices in 2020 when fuel prices fell and drew the wrath of customers.
Fuel is a major tax source for most governments and gasoline is usually the highest tax.
Minister Gammanpila said the latest price hike came when a barrel of gasoline was $ 76.
“The price of gasoline is now $ 83 (a barrel),” he told Parliament. “That is an increase of over 10 percent.”
Excise tax is levied on fuel sold in retail stores, but the CPC refinery receives crude oil without tax, resulting in a loss of revenue to the state and a tax subsidy to the CPC.
Minister Gammanpila said that diesel prices had increased by 7 rupees liters, but the cost was 14 rupees higher even at that point.
Kerosene sold for 77 rupees a liter but cost 105 rupees, he said.
The CEB received furnace oil at 70 rupees, but the cost of imported furnace oil was 105 rupees, he said.
The cost of domestically produced blast furnace oil was 90 rupees, he said. The CPC refinery was allowed to import crude oil without taxes, but refined products are subject to import duties in addition to retail excise duties and other taxes.
Economists had warned that commodity prices would rise this year as the Federal Reserve printed money and US credit and money grew at a pace not seen since the last commodity and credit bubble fired by the Fed.
Ceypetco will suffer losses from rising costs and past dollar borrowing if the rupee depreciates, he said.
In 2020 the CPC had a profit of 2.371 billion rupees after a foreign exchange loss of 21.841 billion rupees.
“But last year’s profits are like a coconut shell flowing under the Kelani Bridge if you compare the losses now,” said Minister Gammanpila.
Gammapila said the CPC has borrowed dollars since 1994.
Sri Lanka’s policymakers tend to lend the CPC dollars every time the central bank prints money and creates currency shortages.
The CPC pays the import bills with borrowed money and remains with an unsecured dollar exposure.
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There was no investigation to find out why the state-owned companies were coerced, and no one was jailed or punished for the colossal losses on CPC’s unsecured forex loans.
In 2018, the Yahapalanaya CPC posted a currency loss of Rs 82 billion despite a pricing formula as money was printed to create currency shortages and the energy SOE borrowed more dollars.
In 2019, when the exchange rate stabilized amid weak credit, it posted a foreign exchange gain of $ 8.23 billion.
In 2020, CPC showed an operating profit of 39 billion rupees, Minister Gammanpila said. In 2020 taxes increased when oil prices fell. It 2020 CPC again lost 21 billion rupees due to the unsecured dollar commitment. (Colombo / July 10/2021)