IMF calls for fuel pricing policy

Reducing losses of Ceylon Petroleum Corporation (CPC) and Ceylon Electricity Board (CEB) would require an automatic price adjustment formula, the IMF said yesterday. IMF delegation head John Nelmes told media that reforms on the two energy giants were a key part of reforms that were recommended to the Government. He advocated that a pricing formula would increase transparency, improve business sentiments and even provide relief to economically vulnerable consumers.  

“Regarding the performance of CPC and CEB, it was a challenging year for the CEB reflecting the drought that took place in the country and that caused a shift from hydro production of electricity towards more expensive thermal production and losses in those two companies increased. The solution to this is a complex one and really relies on two factors, one is putting in place new forms of production and moving towards cheaper options but the other is a need to adjust energy pricing to bring it in line with cost recovery and our recommendation would then be to move towards an automatic price adjustment formula that changes prices on a more continuous basis and avoids the need to make very large changes, which can be disruptive,” he said.

He revealed that the Government was discussing the possibility to introducing such a pricing adjustment formula but no indication was given on the time frame. Nelmes also called on the Government to move to less expensive power generation methods.

“At the same time it is also critical that the Government safeguards spending on the social sectors that the government does not resort to reductions in core social sector expenditure such as health and education and we believe in that very firmly. We are cognisant that when fuel prices increase the vulnerable groups need to be given relief and these should really rely on cash transfers and not wholesale subsidies that can be enjoyed by a larger segment of society.”