By: Staff Writer
November 02, Colombo (LNW): Sri Lanka’s petroleum liberalisation experiment is facing an uncomfortable test as reported diesel supply reductions by private fuel operators have exposed the Government’s vulnerability to commercial pressure, raising questions about regulatory enforcement, public subsidies and the country’s energy security.
The reported decision by certain private petroleum companies to reduce domestic diesel supplies by approximately 50 percent, following distribution losses of up to Rs.192 per litre, has brought the Government into a difficult position.
Rather than allowing the situation to develop into another nationwide fuel shortage, the Government has reportedly resorted to a Rs.70-per-litre subsidy on Auto Diesel, extending financial assistance to the state-owned Ceylon Petroleum Corporation (CPC) and private operators, including Lanka IOC, Sinopec and RM Parks.
This raises a fundamental regulatory question: have private companies operating under Sri Lanka’s liberalised petroleum arrangements acquired sufficient commercial leverage to influence national fuel policy whenever their distribution operations become unprofitable?
The 2022 market liberalisation agreements reportedly require equal treatment of participating operators. Consequently, the Government may face contractual restrictions if it attempts to provide exclusive assistance to the CPC.
However, contractual equality should not be confused with an absence of regulatory responsibility.
Private operators enter the petroleum market under licences and commercial arrangements that carry obligations concerning fuel imports, storage, distribution and uninterrupted supplies. Their commercial interests cannot automatically override the country’s energy security requirements.
If companies are deliberately withholding stocks or reducing supplies to exert pressure for higher prices or financial assistance, the Government must establish whether such conduct violates existing licensing conditions or the Petroleum Products Act.
The Energy Ministry has reportedly sought the Attorney General’s advice on possible legal action against companies deliberately withholding fuel stocks. But the public needs more than an announcement that legal advice is being obtained.
It needs to know whether minimum stockholding requirements are being monitored, whether contractual supply obligations have been breached and whether any operator has faced penalties for failing to meet its responsibilities.
The reported independent increases in premium fuel prices by companies including Sinopec and Lanka IOC further complicate the situation. While private retailers may have pricing flexibility under liberalised arrangements, the Government must explain the regulatory safeguards protecting consumers from excessive or inadequately justified price adjustments.
There is also a serious question about the financial transparency of the reported diesel subsidy.
If taxpayers are providing Rs.70 for every litre distributed, the Government must disclose whether payments are calculated according to actual landed costs, verified distribution losses or another pricing formula.
Without independent verification, there is no publicly demonstrated assurance that assistance is proportionate to genuine costs or that consumers receive the intended benefit.
Consider the wider implications. Diesel is indispensable to public transportation, goods distribution, agriculture, construction and industrial production. Any disruption or increase in its price can spread throughout the economy, eventually raising food prices, production costs and household expenditure.
The burden therefore extends far beyond motorists purchasing fuel.
The reported use of premium petrol margins to cross-subsidise diesel and kerosene, together with the reduction of internal administrative cost allowances from four percent to two percent, also requires closer examination. Such accounting adjustments may redistribute financial pressure without resolving the underlying economics of petroleum imports and distribution.
The IMF dimension cannot be ignored either. Sri Lanka is attempting to restore fiscal credibility under its ongoing programme, with transparent and cost-reflective energy pricing forming part of broader economic reforms.
Continuing opaque subsidies to multiple operators could create fiscal risks and weaken the credibility of those reforms.
The Government must publish the relevant liberalisation agreements, subject to legitimate commercial confidentiality, disclose subsidy allocations and commission an independent examination of supply reductions and distribution costs.
The central issue is not whether private companies should be permitted to operate profitably. It is whether they are fulfilling the obligations attached to their market access while receiving financial assistance from taxpayers.
Sri Lanka liberalised its petroleum market to expand competition and improve supply security. It must now demonstrate that the market operates under enforceable rules rather than allowing supply pressures to determine public policy.When commercial losses become a public expense, accountability cannot remain a private matter.
