Home » CPC’s spot purchases hike fuel price to a new high

CPC’s spot purchases hike fuel price to a new high

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Due to a combination of spot purchases, unsolicited bids (instead of established term contracts) and miscalculation of the pricing formula, Sri Lankan motorists – in recent months – are forced to pay more for fuel at the pump.

Motorists are forced to pay an additional sum of around Rs.145 per litre for 92 petrol, Rs.162 per litre for 95 petrol and Rs.175 per litre for auto diesel due to the recent practice of spot purchase of fuel from any supplier at their selling price in unsolicited bids, a senior Finance Ministry said. .

He noted that the Energy Ministry has no option other than approving the Ceylon Petroleum Corporation (CPC)’s unsolicited proposals to procure fuel from available suppliers due to the present dollar crisis.

The increase in prices on June 26 was based on an inflated landed cost under a new fuel pricing formula introduced on May 24, Sri Lanka Customs and Finance Ministry data showed.

Then petrol 92 increased by Rs.50 to Rs.470 per litre, petrol 95 by Rs.100 to Rs.550, diesel by Rs.60 to Rs.460 and Super diesel by Rs.75 to Rs.520.

This price revision under the new formula included all costs incurred in importing, unloading, distribution to the stations, taxes, as well as operational and administration costs, an Energy Ministry report revealed.

However the new formula is based on a report released on estimated cost of imported refined petroleum products by spot purchasing and it cannot be considered as a proper fuel pricing mathematical model, several energy experts including a former CPC chairman told the Business Times.

They noted that considering the spot purchase price of fuel in calculating landed cost of fuel will lead to discrepancies and manipulations in fixing the wholesale and retail price (price at pump).

A previous fuel price formula formulated by the Finance Ministry in 2018 was based on CIF price (FOB + freight + insurance + evaporation losses) to which the following costs were added – port + jetty charges + customs and excise duty + financial charges + storage and terminal charges + marketing and distribution charges – to arrive at the wholesale cost.

The retail price was arrived at by adding the profit margin of 5 per cent + retailer and dealer margin of 2.5 per cent of the wholesale price + VAT.

Fuel prices had been revised monthly at that time to reflect changes in Singapore Platts average FOB price and exchange rates.

The steep fuel retail price was fixed by the Energy Ministry based on the high landed cost compared to the actual cost, Sri Lanka Customs data shows.

According to the table published along with the details of the new fuel pricing formula by the ministry in May this year, the landed cost of 92 octane petrol is Rs. 363.50 per litre but the actual cost indicated in Customs records is Rs.228.26 per litre with the gap being Rs.135.24.

Similarly the landed cost of 95 octane is Rs.367.18 per litre while the actual cost is Rs.235.23 per litre, the difference being Rs.131.95. The landed cost of auto diesel is Rs.403 per litre but the actual cost is Rs. 255 and the difference is Rs.148.

With a view to justifying the fuel price hike to a new high the total tax on 92 octane petrol has also been inflated to Rs.59.26 compared to an actual tax of Rs.49.12, Treasury records show.

According to the fuel pricing formula data the total tax imposed on 95 octane petrol is Rs. 80.54 while the actual tax component should be Rs.49.64.

Auto diesel tax indicated in the new formula is Rs.36 whereas the actual tax component is Rs.19.19.

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