Thursday, 27 May 2021 12:16

Fuel price hike in the offing as crude oil soars Featured

With Commodity prices including petroleum are set to increase this year

Sri Lanka government has no option other than increasing fuel price to face challenges in several fronts, Finance Ministry sources said.

Present administration has been able to exploit the low oil prices that prevailed during 2020, amidst weaker domestic demand to ease some pressure off the rupee by cutting the petroleum import costs by around 30% in 2020 compared to 2019.

Sri Lanka imported around 13.5 million barrels of crude oil (20% of the total import bill) worth around US$ 3.9 billion in 2019 and the decline in global oil prices coupled with slump in domestic consumption helped to save around $1.3 billion in 2020.

As per the procurement plan of the CPC for 2021, cost of imports of crude oil and refined products is projected to be $ 2.5 billion roughly bench marking $ 59 a barrel of crude oil.

The Central Bank has suggested that fuel prices should be revised to conform to spikes in the world market, State Minister for Finace Ajith Nivard Cabraal said.

He said that this suggestion was made by the Central Bank representatives, including Governor W.D.Lakshman,at a meeting with Prime Minister Mahinda Rajapaksa recently.

Increasing fuel prices is the only option for the urgent need to control the domestic demand for fuel in the face of the foreign exchange (forex) crisis that the country is faced with at present, a senior official of the Ministry of Energy said.

The government n considers introducing fuel price revision soon without burdening th e people as it should be controlled because it is a huge expense of around $3 billion per year he added.

With gradual recovery of economic activities,a rise in domestic demand for oil is likely to increase the import bill and thereby can inflict further pressure on the currency. In addition, increase in petroleum prices will exert stress on the financial position of utility companies in the short-run.

Energy price revision may have a cascading effect on many sectors of the economy. Most importantly, it could trigger a broad-based rise in general price levels.

Furthermore, downstream sector products such as kerosene, heating oil, fuel oils, lubricants, waxes, asphalt, and other petrochemicals would also revise prices affecting multitude of industries.




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