Fuel transparency

As car races take place in Colombo, fuel prices increase. The latest petrol increase has raised old arguments for a transparent and people sanctioned fuel pricing policy that continues to fall on deaf Government ears.  

On the surface, it is easy to sit back and ignore the price increase since it pertains to ‘well off people.’ Yet, that is gross simplification of the facts. Sri Lanka’s most common conveyance is the motorcycle that usually runs on petrol, as do three-wheelers. The latter are usually not disturbed because they pass on the increase to passengers, which means that people who have never even owned a vehicle are impacted.

It is also obvious that Government attempts to pacify the general population by increasing only petrol prices to counter losses on diesel are grossly unfair. It is tantamount to saying that the fate of petrol-using citizens is of secondary import.   

Policymakers have long called for a transparent system that would allow for price flexibility so that when prices increase in the global market, they are passed directly on to the consumers rather than allowed to bleed a public company dry.

One can argue that even if the Treasury releases the funds to cover billions in colossal debt incurred by the CPC, people would still end up paying as the costs would come from their tax money. Conversely, if world prices decrease, the relief would be directly passed on to the public.

Historically, governments have sought to subsidise basic needs, such as fuel, energy, transport and water and sanitation. Generalised subsidies were more justifiable when Sri Lanka was a low-income country and a higher proportion of the population lived below the poverty line. It was also more affordable when Sri Lanka received large amounts of grants and concessional loans.

However, Sri Lanka is now a $ 2,800 per capita income country and the poverty level is 8.9%, according to the Government. The Pathfinder Foundation points out that as a lower-middle-income country, it is no longer eligible for concessional assistance.

Furthermore, it has been argued that the underperformance of State-Owned Enterprises (SOEs) undermines the macroeconomic stability needed to access the financing required from international capital markets for the country’s development programs. This new environment attaches even higher priority to addressing the underperformance of SOEs.

It must be conceded that the losses of SOEs are due to non-cost-reflective pricing policies, operational inefficiencies and poor governance, and the recent move to more cost-reflective administered prices is a welcome development. However, it should be accompanied by a concerted and accelerated campaign to strengthen the ongoing efforts to improve the performance of SOEs.

The Committee on Public Enterprises (COPE) has repeatedly pointed out the massive financial and resource mismanagement taking place in SOEs, particularly in the CPC. Sub-standard fuel imports, sporadic price increases, financial scandals and strikes are among the many ways that the public has experienced the CPC’s inefficiency – many shortcomings that go routinely unpunished.  Moreover, raising prices without public consultation is negligence of democratic rights including transparency and accountability. While it would be challenging to have constructive public engagement on such a sensitive topic, it does not then mean that the Government should always resort to midnight decisions.