The Opposition’s mindless criticism of fuel prices

Friday, 15 June 2012 01:30 -     - {{hitsCtrl.values.hits}}

Lanka IOC has raised the price of diesel. It has for some time been asking that it be allowed to determine its own prices. But unfortunately it caters to too small a market share and cannot afford to get too far out of step without losing business.

Now that world oil price is slipping, there is some mindless criticism by the Opposition that oil prices must be brought down. But the Ceylon Petroleum Corporation is still making losses and the only way to remove such losses is to raise the prices of petroleum products.

Of course, there may be other causes for their higher costs like mismanagement and wasteful expenditure. But all these burdens are heaped on the public. Our State corporations do not follow market-based pricing and hence can never run profitably.

The Government doesn’t want to be blamed for raising oil prices. Isn’t the solution then to privatise the CPC? Some people point to Singapore and say State corporations can be run profitably. Yes, because they follow market-based pricing (they also do not have politicians interfering in them in their business decisions and are also required to make profits in competition with the private sector). If the Government does not want the blame for allowing market-based pricing for any State corporation, it should privatise it.

Factually, nobody wants to see the ground reality in this case. Of course, whenever the fuel price increases, there will always be a cascading effect on all goods and services. But, the real cause of such price increase is overlooked.

About two to three decades ago, what was the condition of our roads? There were only buses, bicycles, a few cars and occasional plying of four-wheelers of the Ministers or high-level bureaucracy.

Last year the present Government decided to reduce the taxes on vehicle imports in addition to the duty free concession given to a plethora of public employees. Why such public employees should be shown this favour is difficult to understand.

So we had US$ 1.9 billion dollars worth of vehicle imports in 2011 with another 1,000 vehicles said to be in harbour. To facilitate every Tom, Dick and Harry to buy his/her choice of SUV, the finance and leasing companies lent money at the prevailing low interest regime, which was another glaring folly of the authorities in a country where capital and savings are short.

Those who are in white-collar jobs found it easy to buy the vehicle of their choice, with the help of bank loan, etc.

Our market proved like a heaven given opportunity for Japanese automobile companies, which require a dumping ground for their one- or two-year-old vehicles, since parking space is severely limited there and parking fees are high.

But then, the crude oil villains too watched it with ease, allowed the automobile market to flood the roads with every brand of two or four-wheelers and once they saw the iron was hot, they started beating it to their advantage. OPEC countries have this large whip in their hands to beat left or right, whichever way they feel. Oil has proven it power as a deadly weapon that can cripple the international economy at ease.

The Government should give a free hand to the CPC and LIOC to determine their prices subject to the supervision of the Public Utility Commission instead of the Govt. selling them at subsidised prices.

The Opposition cries foul on price escalation and put the blame on the Govt. The hard fact lies in that the purchasing capacity of people, particularly in the middle class, are increasing day by day because of increases in their wages, etc. and they are engaged in large-scale purchase of new, innovative automobiles and thus the demand for fuel is on the increase day-by-day with the result and coupled with the other fact of escalation in crude price in global market, the oil companies are left with no option but to increase its price, so that they may not run in deficit.

In any case, those who are in Govt., public service, like politicians, bureaucrats and the officialdom are not worried whatever may be the increase in fuel price, as they are enjoying free rides for themselves as well as their near and dear ones. But those who have to dish out money from their own pockets are hit directly and no doubt the common man suffers the most as he is not getting any compensation like the Govt. servants who are gifted with wage increases time to time.

Big business/corporations too aren’t in the least bothered, but the common man, who finds it difficult to make both ends meet, is the worst sufferer in this case. Though every political party swears by this common man, they themselves are the real culprits making the common man suffer. That is the hard truth.

I remember in Athens in the 1970s there was a law which allowed into the city only odd numbered vehicles on certain days of the week and even numbered vehicles on other days. This reduces the flow of vehicles to the city by half. Alternatively, road space may be charged by levying a fee for vehicles to enter the city. But such a measure requires administrative competence, which we sadly lack.

Reduction in oil consumption and oil imports is essential to correct our balance of payments problem. Don’t put the burden of resolving the problem on the poor through protectionist measures on food imports. Let the rupee float and do that job, allowing consumers to economise instead of dictating to them.

R.M.B. Senanayake