Advocata praises fuel price hike, urges transparency in CPC formula

Economic policy think tank Advocata Institute in a statement yesterday praised the Government’s mid-month fuel price revision as a decisive move that prevented hoarding and shortages during a global energy shock, while calling for cost-reflective pricing to protect scarce foreign exchange and maintain fiscal discipline, and for greater transparency in the Ceylon Petroleum Corporation’s (CPC) pricing formula.

The statement in full is as follows.

We commend the Government’s decisive move to revise fuel prices mid-month without prior notice. This action protected consumers from artificial scarcity and market manipulation. By breaking the traditional end-of-month cycle, the Government removed incentives for hoarding by both consumers and retailers. Had the Government waited until 1 April 2026, fuel stations and bulk buyers would likely have restricted supply to profit from selling cheap stock at higher revised rates. This intervention ensures fuel remains a public utility rather than a tool for private profiteering during a global crisis.

These immediate implementations serve as a shield for national resource management by reflecting global costs to ration scarce foreign exchange and fuel reserves. When resources become expensive globally, the most efficient way to prevent depletion is by rationing through price rather than queues. 

Furthermore, these market-reflective prices incentivise the adoption of substitutes. Delaying these hikes would have encouraged wasteful consumption of fuel the country can no longer afford to replace at previous prices. Conversely, market-reflective pricing incentivises citizens to travel only when necessary and to transition towards a green economy.

Because prices act as a signal wrapped in an incentive, keeping them artificially low sends a false message of abundance, leading to waste. Furthermore, cost-reflective pricing is an economic necessity. Blanket fuel subsidies disproportionately benefit the wealthy, who consume approximately 70% of the country’s fuel despite being only 30% of the population. Correct pricing and Value Added Tax (VAT) collection generate higher tax revenue that can be funnelled directly to the poor, creating a more equitable and resilient Sri Lanka.

Fuel accounts for a staggering 15% of Sri Lanka’s current account outflows. The outdated monthly revision cycle is a relic that fosters a gambling environment where panic buying and hoarding are common. We urge the Government to adopt a system of weekly adjustments, an interim step towards daily pricing similar to regional neighbours like India. Gradual adjustments spread economic pressure and prevent the sudden shocks that disrupt industries.

We further commend the Government’s consistent application of these principles to the Liquefied Petroleum Gas (LPG) sector. Immediate adjustments prevent supply shortages and ensure the financial viability of providers like Litro Gas. While a bitter pill, this reflects a mature energy policy prioritising long-term security over short-term political gain.

However, we call for greater institutional transparency regarding the CPC’s pricing. Given that fuel has a significant impact on the Colombo Consumer Price Index (CCPI), transparency must be a mandate. In an oligopolistic market where the CPC is the leader, the public has a right to an audited breakdown of the formula. This ensures that price hikes truly reflect global costs rather than masking internal inefficiencies or a lack of cost control.