A different view

Reading between lines is always necessary when dealing with political speeches. The world price of oil has been under discussion for a long time and everyone was of the belief that it would only be a matter of time before the numbers increased in Sri Lanka.

True to those predictions the government has informed parliament that heavy losses were being incurred due to subsidies that were being extended on fuel. 

According to weekend reports rising tensions in oil rich West Asia and North Africa and losses due to reduction of taxes will lead to hikes in fuel prices, but the government is yet to decide whether it would be on petrol only or on diesel as well.

They quoted Petroleum Resources Minister Susil Premajayanth as saying that the officials of the CPC and Treasury were studying the prices in view of the losses suffered.  The same report noted that he declined to give any more details and that the Petroleum Ministry and the Treasury are studying the price structure before the proposed increase comes into effect after April.

Many are the times when various ministers have stated that the government was suffering heavy losses by subsidising fuel prices. To this we offer a different contention. A simple search on Google reveals that the retail price of patrol in the USA is approximately US$ 3.56 on 21 March on the East Coast, this increased to around US$3.96 in California.  This is of course for a gallon and a simple conversion shows that on an average there is around 3.9 litres per gallon. A very simple calculation puts the price paid by an American consumer for a litre at the pump to about one dollar. When this is converted the price in rupees is Rs.110. so how is it that the Sri Lankan consumer spends Rs.115?  

One can argue that the US being an oil producing nation can afford to give consumers a better price. Yet even a surface perusal of the US government tactics show that they funnel their assistance in tax cuts to the oil industry rather than the consumer. A report from the Environment Law Institute in 2009 estimated that from 2002-2008 the US government gave a mind boggling US$ 72 billion for industry subsidies. This has been a long drawn out controversy with supporters claiming that the subsidies free up oil companies to invest in more exploration while others point out the massive damage to the environment and energy security.

Large oil corporations such as BP do not sell to the US government, they sell on the international market where they can obtain the best price — this is simple common sense. Therefore how is it that the Sri Lankan prices are higher? Can it be that they are significantly subsidised as the government claims? Or is there a more elusive truth behind the statement.   

Newspapers reported that the tax of Rs. 75 on a litre of petrol had been reduced to Rs. 25 while only a tax of Rs. 2.50 was being imposed on a litre of diesel.  In light of these numbers we are offering the contention that the government is only considering whether or not to increase taxes and a subsidiary, which essentially absorbs the prices and keeps it from being passed onto the customer, does not really figure in the equation. A tax on the other hand simply provides money to the government from a consumer or company. Therefore its increase or decrease simple affects government revenue and is not to be confused with a subsidy.

This is simply a point of view that is offered to clear the air so to speak and understand exactly whether a fair deal is being offered to the consumer. How the government will deal with these challenges, time will show.