- Extra Revenue From Price Revision For Subsidy Payments Says PB
By Mandana Ismail Abeywickrema
Dr. P. B. Jayasundera
Treasury Secretary Dr. P. B. Jayasundera says that the extra revenue earned through the fuel price revision would be earmarked to meet the subsidy cost of the targeted subsidy schemes.
He noted that while general subsidy schemes are not effective solutions, the targeted subsidy scheme currently adopted by the government remains within the overall subsidized pricing policy of fuel operated by Ceylon Petroleum Corporation (CPC), in order to provide relief to vulnerable groups.
Responding to questions posed by The Sunday Leader via e-mail, Dr. Jayasundera observed that the cost of such subsidy schemes are covered by a space created through the reduction in losses in the two major enterprises and through extra tax revenue earned from petrol and diesel sold by both LIOC and CPC.
He explained that at the prevailing international oil price of around US$ 120 per barrel, the CPC would have incurred a total loss of Rs.188.5 billion over and above a total loss of Rs. 90 billion incurred in 2011 which corresponds to an average price of around US$ 110 per barrel.
The loss reported by the CPC in 2011 was in spite of a moderate price revision of petrol by Rs.15 per litre, diesel by Rs.8 per litre and kerosene by Rs.15 per litre, he said.
However, there was no revision on other fuel prices particularly for power generation and heavy fuel supplied for industrial purposes.
The recent price revision involves the revision of all petroleum prices including the fuel supplied for electricity and industrial purposes.
“As a result the projected losses of CPC is expected to be limited to Rs.64 billion which is substantially lower than the projected loss, in the event that no revision was made and also reasonably lower than the actual loss in 2011. The fuels supplied for power generation and industrial purposes were still given an average subsidy of Rs. 45 per litre,” Dr. Jayasundera noted.
However, petrol and diesel are no longer loss making items, while kerosene is almost at the breakeven level.
“Hence, the CPC still runs at a loss on account of the subsidy provided on the heavy fuel supplied for electricity generation which keeps the cost of electricity lower than what it should be,” he said.
With the adjustment in fuel prices, the Ceylon Electricity Board (CEB) is compelled to reduce its associated losses in order to limit its operating losses to below Rs. 50 billion and a fuel surcharge has been imposed on electricity consumption.
Nevertheless, the Treasury Secretary maintained that out of the total electricity consumers of 4.62 million, there are households consuming electricity below 150 units per month that enjoy subsidies.
The surcharge is effective for general users as well as industrial purposes except education, health and religious services.
Therefore, the overall impact of this revision is expected to keep the losses of CEB below Rs. 50 billion.
While price revisions have been put in place, the government has targeted several categories for relief/subsidies. The government is to provide all households without access to electricity which is estimated at around 355,000 a kerosene stamp worth of Rs. 200 per month at a cost Rs. 850 million per year.
Similarly, the out-board boats and mechanized traditional boats will be given specific quantities of kerosene with a subsidy of Rs. 25 per litre, while multi-day boats and one-day boats will be given specific quantities of diesel with a subsidy of Rs.12 per litre. The total estimated cost of this kerosene and diesel subsidy is around Rs.2,500 million per year.
The government also proposes to implement a targeted subsidy scheme for school van operators and three wheeler operators where the estimated costs of these subsidies are around Rs. 4,000 million per annum.
However, the price revision has also resulted in the petrol sold by Lanka Indian Oil Company (LIOC) in addition to CPC, being subjected to tax of about Rs.12 per litre and diesel of about Rs. 2 per litre, which will give extra revenue of Rs. 9,500 million to the government.
“This extra revenue will be earmarked to meet the subsidy cost of these targeted schemes. At the same time, the reduction in overall losses in CPC and CEB provides a considerable improvement in the operation of two enterprises without burdening the national budget and the banking system,” Dr. Jayasundera pointed out.
The subsidy schemes are implemented through the Government administrative mechanism. The Samurdhi scheme and the Fisheries Ministry have implemented similar schemes. Private Transport Ministry and National Transport Commission will formulate implementation schemes for three wheeler operators and school van operators with certification from Divisional Secretaries and the National Child Protection Authority as the case may be.
He noted that while general subsidy schemes are not effective solutions, the targeted subsidy scheme currently adopted by the government remains within the overall subsidized pricing policy of fuel operated by Ceylon Petroleum Corporation (CPC), in order to provide relief to vulnerable groups.
Responding to questions posed by The Sunday Leader via e-mail, Dr. Jayasundera observed that the cost of such subsidy schemes are covered by a space created through the reduction in losses in the two major enterprises and through extra tax revenue earned from petrol and diesel sold by both LIOC and CPC.
He explained that at the prevailing international oil price of around US$ 120 per barrel, the CPC would have incurred a total loss of Rs.188.5 billion over and above a total loss of Rs. 90 billion incurred in 2011 which corresponds to an average price of around US$ 110 per barrel.
The loss reported by the CPC in 2011 was in spite of a moderate price revision of petrol by Rs.15 per litre, diesel by Rs.8 per litre and kerosene by Rs.15 per litre, he said.
However, there was no revision on other fuel prices particularly for power generation and heavy fuel supplied for industrial purposes.
The recent price revision involves the revision of all petroleum prices including the fuel supplied for electricity and industrial purposes.
“As a result the projected losses of CPC is expected to be limited to Rs.64 billion which is substantially lower than the projected loss, in the event that no revision was made and also reasonably lower than the actual loss in 2011. The fuels supplied for power generation and industrial purposes were still given an average subsidy of Rs. 45 per litre,” Dr. Jayasundera noted.
However, petrol and diesel are no longer loss making items, while kerosene is almost at the breakeven level.
“Hence, the CPC still runs at a loss on account of the subsidy provided on the heavy fuel supplied for electricity generation which keeps the cost of electricity lower than what it should be,” he said.
With the adjustment in fuel prices, the Ceylon Electricity Board (CEB) is compelled to reduce its associated losses in order to limit its operating losses to below Rs. 50 billion and a fuel surcharge has been imposed on electricity consumption.
Nevertheless, the Treasury Secretary maintained that out of the total electricity consumers of 4.62 million, there are households consuming electricity below 150 units per month that enjoy subsidies.
The surcharge is effective for general users as well as industrial purposes except education, health and religious services.
Therefore, the overall impact of this revision is expected to keep the losses of CEB below Rs. 50 billion.
While price revisions have been put in place, the government has targeted several categories for relief/subsidies. The government is to provide all households without access to electricity which is estimated at around 355,000 a kerosene stamp worth of Rs. 200 per month at a cost Rs. 850 million per year.
Similarly, the out-board boats and mechanized traditional boats will be given specific quantities of kerosene with a subsidy of Rs. 25 per litre, while multi-day boats and one-day boats will be given specific quantities of diesel with a subsidy of Rs.12 per litre. The total estimated cost of this kerosene and diesel subsidy is around Rs.2,500 million per year.
The government also proposes to implement a targeted subsidy scheme for school van operators and three wheeler operators where the estimated costs of these subsidies are around Rs. 4,000 million per annum.
However, the price revision has also resulted in the petrol sold by Lanka Indian Oil Company (LIOC) in addition to CPC, being subjected to tax of about Rs.12 per litre and diesel of about Rs. 2 per litre, which will give extra revenue of Rs. 9,500 million to the government.
“This extra revenue will be earmarked to meet the subsidy cost of these targeted schemes. At the same time, the reduction in overall losses in CPC and CEB provides a considerable improvement in the operation of two enterprises without burdening the national budget and the banking system,” Dr. Jayasundera pointed out.
The subsidy schemes are implemented through the Government administrative mechanism. The Samurdhi scheme and the Fisheries Ministry have implemented similar schemes. Private Transport Ministry and National Transport Commission will formulate implementation schemes for three wheeler operators and school van operators with certification from Divisional Secretaries and the National Child Protection Authority as the case may be.
