By Mandana Ismail Abeywickrema

The government's claim that a reduction in petrol prices would have a direct impact on the taxes collected through fuel sales aimed at funding defence expenditure and development work has been rubbished by workers attached to the Ceylon Petroleum Corporation (CPC).

The workers allege that the government was not reducing petrol prices in line with the declining global fuel prices and the Supreme Court directive issued on December 17, 2008, as the government was in the process of collecting funds to pay millions that it owed to international banks following the oil hedging deal.

They charge that the people have been forced to suffer due to the short-sighted economic policies of certain government officials. They say that the government has provided no real relief to the people via its "economic stimulus package" presented last month.

The government without heeding a Supreme Court directive to reduce the price of a litre of petrol from Rs. 122 to Rs. 100 last month decided to reduce the price of petrol by only Rs. 2 per liter.

No impact

Sources from the JSS Petroleum Branch said that the reduction of Rs. 2 from a litre of petrol has not had any impact on the taxes collected by the government from petrol sales.

It has been calculated that after adding the government taxes, the CPC could sell petrol at Rs. 108 per litre, even after including a profit margin for the CPC.

According to calculations, CPC sources explained that a barrel of petrol if bought at US$ 40, the price of a liter of petrol at the time of being cleared at the port would cost Rs. 28. After adding the import duty of Rs. 35, excise duty of Rs. 25, provincial council tax of Rs. 4, CPC costs of Rs. 9.70 and VAT of 5%, a litre would still cost only Rs. 108 - 109.

Secretary, JSS Petroleum Branch, Ananda Palitha pointed out that since a litre of petrol could be sold at Rs. 108, inclusive of all taxes and the Corporation's profit margin, the reduction of Rs. 2 would not have any impact on the taxes collected by the government through fuel sales.

In fact, he explained that the Rs. 2 has been reduced from the additional profit of Rs. 14 per litre enjoyed by the CPC (Rs. 122 - Rs. 108 = Rs. 14). He reiterated that this additional profit does not go to the government and remains with the CPC.

Palitha therefore pointed out that the government has not really passed on the benefit of the declining global prices to the people.

Only 30% imported

He also noted that the import duty of Rs. 35 imposed on imported refined petroleum products has been added to the petrol sold by CPC regardless of the fact that it imported only 30% of its petrol quota in refined form.

Almost 70% of the country's petrol requirement is refined in Sri Lanka. (CPC sells 700mt of petrol per day. Of which 550mt is refined in Sri Lanka and the remaining 150mt imported in the refined form.) Therefore, Palitha alleged that the CPC has slapped the Rs. 35 import duty on the CPC's complete petrol quota.

In layman's terms, Palitha said that the CPC currently applied the import tax on the crude oil brought down to be refined in to petrol. In addition, it is interesting to note that the government was not passing the benefit of the refinery prices to the consumers.

The government did not reduce the local fuel prices when the global prices showed a drastic decline and after much protest the main opposition sought legal redress to force a fuel price reduction.

Even after the Supreme Court issued a directive calling for the reduction of fuel prices, the government responded with various claims and allegations of conspiracies to justify the non-reduction of fuel prices.

Need for money

A key argument presented by the government was that there was a need for money to fight the war and engage in development activities. It was said that money is earned though various methods and taxes were a key revenue generating measure.

Analysts have pointed out that the government would not incur a huge revenue loss due to a reduction in petrol prices.

Analysts noted that the government in its revenue column in the 2009 budget has calculated only Rs. 12 as the profit from petrol sales in 2009 - Rs. 10 less than the present profit of Rs. 22.

The CPC usually sells approximately 50 million litres per month and if the government reduces the price of a litre to Rs. 100 and incur a loss of Rs. 12 per litre, it would only 'lose' a sum of Rs. 600 million. According to budget estimates, the government loses Rs. 7,200 million from its revenue annually due to fuel sales.

Considering the fact that the government intends to spend Rs. 177,000 million for the war and Rs. 225,000 million on public sector salaries, analysts say that the amount the government would lose due to a price reduction in petrol would be minimal.

On the other hand, it is also pertinent to note that the government has allocated a sum of Rs. 6,000 million for Mihin Air, a venture that has so far incurred a loss of Rs. 3,200 million.

Diesel tax

Also, analysts have pointed out that the government imposed a tax of Rs. 5 on an imported litre of diesel after the budget presentation (not included in the 2009 budget estimates). According to statistics, the government sells up to 140 million litres of diesel per month and the imposition of the new tax ensures the government an additional income of Rs. 8,400 million per year.

Analysts note therefore that the government could easily use the Rs. 8,400 million earned through diesel sales to cover the losses incurred by the reduction of petrol prices.

Referring to the price of diesel, Palitha said that the government provided a litre of diesel to Lanka Marine Services at Rs. 49.65, which is the current local market price.

He said that even the Ceylon Electricity Board (CEB) was sold a litre of petrol Rs. 10 higher than the price offered to the marine sector.

He also said that turbine oil used by the aviation industry was sold by the CPC at Rs. 48.95 per litre. Palitha argues that the CPC although in a position to offer greater relief to the consumers, it was not doing so.

Competitiveness

Petroleum and Petroleum Resources Minister A.H.M. Fowzie on an earlier occasion told The Sunday Leader that the CPC had to sell fuel to ships through bunkering at current international market prices. He said that if the CPC did not follow this formula, it would lose its competitiveness in the bunkering business.

However, a litre of diesel is currently sold at Rs. 70 to ordinary consumers.

Palitha also explained that the government could reduce the price of a litre of kerosene even further, as the country's total kerosene requirement is refined in the country.

The CPC refines 900mt of kerosene when the required amount stands at 300mt. The balance is sold as furnace oil. Palitha observed that the government instead of lamenting on possible losses the CPC would incur due to a fuel price reduction should look at means of increasing its revenue.

He said that the CPC should look at commencing the manufacturing and distribution of lubricant oils, a plan that has been in the pipeline since President Chandrika Kumaratunga's tenure in office. He explained that since the price of lubricant oil has seen a drastic increase, the CPC should re-enter the lubricant market.

Income

Another area CPC needs to consider according to Palitha is the agro chemicals sector. Since the CPC currently produces 25% of the local demand, there would be a greater demand if the Corporation produced the country's complete agro chemicals requirement.

He also noted that the CPC could develop even further by taking over the LMSL land in the port, following the recent Supreme Court order.

"The government is spending millions of rupees on wasteful endeavours, especially those like Mihin Air. If funds allocated to that are used to develop the areas attached to the CPC as mentioned above, the government would be in a position to reduce fuel prices without any slashes in taxes," Palitha said.