Fuel import costs surge beyond pricing, exposing structural gap energy model

• Former CPC Chief Susantha Silva says diesel landed cost approaches $ 350 per barrel amid spike in premiums and freight
• Domestic prices lag costs, with losses exceeding Rs. 280 per litre
• Crude supply constrained by Middle East disruptions and refinery limitations
• Import financing burden more than doubles, raising risks to supply continuity

Former CPC Managing Director/CEO Susantha Silva

Sri Lanka’s fuel import framework is under strain as global price movements and supply disruptions push costs well beyond domestic pricing, raising questions over the sustainability of the current model.

Speaking at the ICCSL–Daily FT–ACCA webinar on ‘Crisis or Opportunity: Sri Lanka’s Path During the Middle East Crisis,’ former Ceylon Petroleum Corporation (CPC) Managing Director/CEO Susantha Silva said crude oil supply to the country has been constrained by developments in the Middle East, a region that has historically accounted for a significant share of sourcing.

Alternative supplies have been secured from markets such as Singapore, Malaysia, and Indonesia. 

However, the constraint is not availability alone. Sri Lanka’s refinery, which is over 60 years old, was designed to process Iranian crude, limiting flexibility in sourcing.

Following sanctions on Iran, crude supply shifted to Abu Dhabi’s Murban grade. More recently, securing these shipments has become difficult. A recent cargo arrived only after the refinery had already been shut down, disrupting operations. Restarting a refinery requires around two weeks, and such interruptions add to operational costs.

West Texas Intermediate (WTI) crude from the US has been identified as an alternative. While supply is available, transit times of 30 to 35 days and elevated freight costs reduce its viability.

“The more immediate pressure is in refined petroleum markets. Diesel prices in the Singapore market exceeded $ 292 per barrel on 2 April, well above previous peaks observed in 2014 and 2022, when prices remained below $ 150. These levels relate to refined products such as diesel and petrol. By comparison, crude benchmarks such as WTI are around $ 105 per barrel.” Silva said.

On top of the base price, additional costs including supplier premiums, insurance, and freight have risen from around $ 5 per barrel to about $ 60. This places the effective landed cost of diesel near $ 350 per barrel.

Domestic retail prices have not adjusted in line with these costs. Diesel is currently sold at a loss exceeding Rs. 280 per litre. If prices were to reflect costs, they would need to increase by a similar margin.

The cost escalation is not limited to price levels but extends to financing requirements. A typical 40,000-tonne fuel shipment, previously costing around $ 27–30 million, now requires close to $ 70 million.

Silva said the situation reflects global conditions rather than a country-specific issue, pointing to geopolitical conflict as the underlying driver. However, the implications are local. If pricing remains below cost, fuel importers, including the CPC and other suppliers, may not be able to sustain imports even when supply is available in international markets.

The gap between cost and pricing also feeds into the wider economy. Energy inputs, including fuel and electricity, are effectively priced below their economic cost. As a result, goods and services are produced at prices that do not reflect underlying input costs, with the economy absorbing the difference.

Joint Opposition files CIABOC complaint over CPC diesel imports, flags pricing irregularities

A complaint has been lodged with the Commission to Investigate Allegations of Bribery or Corruption (CIABOC) seeking an investigation into alleged irregularities in diesel imports by the Ceylon Petroleum Corporation.

The complaint, filed by the Joint Opposition, alleges that the transactions have resulted in a significant financial loss to the Government.

It further claims that an unsolicited supplier had demanded a premium of $ 45 per barrel for a shipment of 248,000 barrels, while another bid quoting a premium of $ 38 per barrel had been rejected, raising questions over procurement decisions.

The complaint calls on authorities to obtain statements from relevant officials and examine documentation linked to the imports to determine whether fraud or irregularities occurred.

It also urges that legal action be pursued against any parties found responsible, pending the outcome of investigations.