Sri Lanka’s proposed response to the petroleum pricing crisis risks creating a new form of economic inequality: one fuel market for consumers able to pay commercial prices, and another for those dependent on cheaper state-supplied fuel.
The controversy follows growing pressure on private distributors, who reportedly face losses of up to Rs. 160 per litre of diesel as international landed costs rise. Lanka IOC, Sinopec and RM Parks are said to be restricting supply because they cannot sustain sales at prices that do not cover their costs.
The resulting shortages are not necessarily caused by a lack of fuel at national level. They may instead reflect a breakdown in the commercial incentives required to move fuel efficiently through the distribution network. When private companies cannot recover import costs, their rational response is to reduce exposure. When state stations remain cheaper, commercial users naturally redirect demand towards them.
That is precisely where the proposed multi-tier Maximum Retail Price system could become dangerous.
Under the reported proposal, private distributors would be permitted to charge higher prices while CPC maintains lower retail rates. The arrangement might temporarily prevent a nationwide price shock, but it would transfer the burden into queues, supply bottlenecks and business disruption.
Small and medium enterprises are particularly vulnerable. A large corporation may be able to absorb higher fuel prices or negotiate supply arrangements. A small transport operator, wholesaler, farmer or construction business has far less room to manoeuvre. If cheaper CPC fuel becomes the only economically viable option, businesses may be forced to spend hours searching for supplies rather than operating.
The consequences could spread rapidly. Commercial fleets competing for limited state fuel would increase congestion at CPC stations. Delivery schedules would be disrupted, working capital would be consumed by delays, and the cost of moving goods would rise even where the official retail price remained unchanged.
This is the hidden danger of price suppression: inflation does not disappear simply because the pump price is controlled. It can reappear through transport delays, shortages, reduced production, higher distribution costs and weaker business productivity.
he CPC’s ability to maintain lower prices also requires scrutiny. The document indicates that the corporation is relying on refinery margins and depleted low-cost stockpiles to soften the impact of global prices. Such measures may provide temporary relief, but they cannot substitute indefinitely for cost-reflective pricing. Once cheaper inventories are exhausted, the financial pressure could become more severe.
The global outlook adds urgency. Geopolitical tensions in the Middle East and disruptions along shipping corridors are reportedly pushing forecasts into a volatile $90–$120 per barrel range. Sri Lanka therefore faces not a brief pricing disturbance, but a prolonged period of elevated energy costs.
The Government’s challenge is not merely to decide whether fuel should become more expensive. It must determine who bears the cost, how transparently it is recorded, and whether the distribution system can remain functional.
A two-tier price structure may appear politically convenient, but unless accompanied by safeguards for commercial users, transparent subsidy accounting and reliable supply obligations, it could deepen the very instability the policy seeks to prevent. Sri Lanka’s fuel crisis is increasingly becoming a test of whether economic reform can survive political pressure without sacrificing market functionality.
