Sri Lanka’s state-run Ceylon Petroleum Corporation has lost 57 billion rupees up to May 2021 after as prices were kept fixed and also due to forex losses from dollar loans, Petroleum Minister Udaya Gammanpila said.
Sri Lanka’s current administration abandoned under its ‘Saubhagyaye Dekma’ manifesto jettisoned price formula that was aimed at balancing input and output costs.
Retail prices were raised last month, after keeping them higher than world prices in 2020 when fuel prices fell, drawing the ire of customers.
Fuel is a key source of taxes for most government and petrol is usually charged the highest tax.
Minister Gammanpila said the recent price increase was made when a barrel of petrol was priced at 76 dollars.
“Now the price of petrol is 83 dollars (a barrel),” he told parliament. “That is an increase of over 10 percent.”
Excise tax is charged on the retailed fuel but the CPC refinery gets crude without taxes in a revenue loss to the state and a tax subsidy to the CPC.
Minister Gammanpila said diesel prices were raised by 7 rupees litre but the cost was 14 rupees higher even at that time.
Kerosene was sold at 77 rupees a litre but cost 105 rupees, he said.
Furnace oil was given the CEB at 70 rupees but the cost of imported furnace oil was 105 rupees, he said.
The cost of domestically produced furnace oil was 90 rupees he said. The CPC refinery was allowed to import crude without taxes but refined products are charged import duties on top of retail excise and other taxes.
Economists had warned that commodity prices would move up this year as the Federal Reserve printed money and US credit and money supply was growing at a pace not seen since the last commodity and credit bubble fired by the Fed.
Ceypetco is running losses from rising costs as well as dollar loans taken in the past, when the rupee depreciates, he said.
In 2020 the CPC had made a 2.371 billion rupee profits after a 21.841 billion rupee forex loss.
“But the last year profits are like a coconut husk flowing under a bridge when you compare the losses now,” Minister Gammanpila said.
Gammapila said the CPC has had dollar borrowings from 1994.
Sri Lanka’s policy makers tend to make the CPC borrow dollars each time the central bank prints money and creates forex shortages.
The CPC settles the import bills with borrowed money and is left with a unhedged dollar exposure.
There has been no inquiry to find out why the state enterprises is made to do it and nobody had been jailed or punished for the colossal losses from CPC’s unhedged forex loans.
In 2018 despite a price formula the ‘Yahapalanaya’ CPC ran a 82 billion rupee forex loss as money was printed to create forex shortages and the energy SOE borrowed more dollars.
In 2019 as the exchange rate stabilized amid weak credit, it made a forex gain of 8.23 billion US dollars.
In 2020 CPC showed 39 billion rupees operational profit Minister Gammanpila said. Taxes were hiked in 2020 as oil prices fell. It 2020 CPC again lost 21 billion rupees on the unhedged dollar exposure.