Energy Minister Anura Karunathilake has said the government has set aside Rs. 41 billion for the diesel subsidy for the three months from October to December.
Speaking on the Derana programme ‘360’, the Minister said Rs. 15 billion was provided for October and a further Rs. 26 billion has been allocated for November and December.
He rejected the argument that consumers should be charged only the landed cost of fuel at the port, calling it completely impractical. No country with a market economy operates in that way, he said. Even oil-rich countries such as Libya in the past relied on a strict policy of state-backed subsidies, he added.
The Minister said the price of 92 octane petrol and diesel had been held at a stable level for a long period. World market fuel prices then rose sharply because of the conflicts in the Middle East, a factor he described as beyond the government’s control.
Cutting fuel taxes or giving subsidies directly both end with the cost falling on the Treasury, the Minister said. The government decided to continue the diesel subsidy because diesel prices directly affect public transport, agriculture and industry, he said.
Background
Retail fuel prices in Sri Lanka are set through a government-approved pricing mechanism that involves the state-owned Ceylon Petroleum Corporation. They respond to the cost of imported crude oil and refined products, which are bought in US dollars and priced on world markets. A conflict that disrupts supply routes or production in the Middle East can therefore push up import costs quickly.
A subsidy and a tax cut are different tools with a similar effect on public finances. With a subsidy, the government pays part of the cost directly. With a tax cut, the government gives up revenue it would otherwise have collected. In both cases the Treasury carries the cost, as the Minister pointed out.
The Minister’s figures add up: Rs. 15 billion for October and Rs. 26 billion for November and December make Rs. 41 billion for the quarter.
What it means
For readers, the main practical point is that diesel prices are being supported with public money until the end of December. Diesel is the fuel that matters most for buses, lorries and farm machinery, so the price of transport, food and goods is closely linked to it.
The Minister did not say what would happen to the subsidy after December in the remarks reported here. Any change would depend on a later government decision and on world fuel prices.
