Monday, February 13, 2012

How much does the Ceylon Petroleum Corporation raise through the price hike?

Fuel prices were hiked last week, not unexpected given the need to maintain the budget deficit at targeted levels (so that further borrowings can be made). What was shocking was the size of the increase; kerosene by Rs.35 (up by 49%) and diesel by Rs.31 (up by 37%).

According to the Central Bank Annual report (see page 63), the country's fuel consumption in 2010 was as follows:

Metric Tonnes
Petrol 90 octane 595,000
Petrol 95 octane 22,000
Auto diesel 1,699,000
Super diesel 12,000
Kerosene 165,000

Converting this into litres (at approximate specific densities of 0.74 for petrol, 0.95 for diesel and 0.82 for kerosene) and multiplying the results by the amount of the price increase the CPC will raise Rs.72bn, assuming that fuel consumption remains at the above level.

This is a lot of money, by any standard. The Government revenue (excluding grants) in 2011 was Rs.963bn. The 2011 revenue deficit was about Rs.95bn, this was to be reduced to virtually zero (just Rs.1.8bn) in 2012. The price increase in fuel (72bn) will plug most of the gap, provided of course that expenditure is in line with budget.(Have a look at this link for a few more details on 2011 and 2012 figures).

Could the Government have plugged the gap in some other way?

If expenditure were cut, then there would be no need to raise prices. Where there is waste, inefficiency and corruption it should be relatively easy to cut costs, with no loss of services. Close down or sell off loss-making enterprises and improve the efficiency of others. The COPE reports highlights enough problems with public enterprises, its time to start dealing with them, or face the prospect of still higher taxes, to pay for more waste.


Anonymous said...

I think you are assuming that this increase will cut the loss at the CPC completely.
but the problem this has only lower the loss to a more manageable amount.

from 177 B to 60 something B.

so this will not be a profit for the CPC.
and even though prices are increased, diesel and kerosene are still sold at a loss. petrol is sold at a profit but it is not enough to cover the losses incurred by diesel and kerosene sales.

note: (considering global markets) diesel cost more than kerosene or petrol.kerosene is cheaper than diesel but costs more than petrol.
We don't sell them according to their actual price.

Jack Point said...


thanks for the comment. I did see the figure for the revised loss, I was not sure where it came from.

From what I hear, diesel should now be at a profit.

There is supposed to be a big loss on furnace oil but I still can't figure out how they can lose so much. Previously they used to lose 5-10bn, and CEB losses were also in that region. I don't know what they have done to take them to these levels.