By Ranjith Jayasundera

The very same Ceylon Petroleum Corporation (CPC) that sent our fuel prices through the roof last week was described as recently as January 2007 by then SLFP MP Wijeyadasa Rajapakshe as a "monster devouring public funds."

The MP was presenting the report of the Committee on Public Enterprises (COPE), which found that the CPC had sold a Rs. 2.4 billion asset, Lanka Marine Services Limited, for Rs. 1 billion, alleging that "there had been a lot of corruption" in that transaction.

Profit making

The CPC has, over the last several years, been a profit making state institution. The Corporation posted a profit of Rs. 4.9 billion in 2003, which fell in 2004 to Rs.3.9 billion. The CPC bounced back from this relative slump to turn a Rs. 7.7 billion profit in 2005.

Within one year of Chinthana the CPC posted a loss in 2006, of Rs.1.5 billion. It managed to recover its losses with a net profit of Rs. 2.7 billion in 2007, despite claiming to subsidise its fuel prices. What it would appear is being subsidised in the CPC, at least in the eyes of the former COPE chairman, is corruption and bureaucracy.

Given that the CPC posted total profits of Rs. 17.7 billion rupees between 2003 and 2007, and was callous enough to sell a Rs.2.4 billion asset for Rs.1 billion, it is difficult to believe that the government is hard pressed to maintain its fuel subsidies unless there is some other sector to which money is being diverted, such as waging war in the Wanni at a cost of over Rs.160 billion this year.

Back to the CPC. The Corporation has been showing a clearly established pattern of dealing with problems only after they have exploded in full force, with little sensible future planning. An example of this was when Petroleum Minister A.H.M. Fowzie announced that the CPC had accumulated losses of up to Rs. 7.3 billion in 2008 as of April 15.

Unprecedented

After this staggering and unprecedented loss had been incurred - not before - the CPC decided to take measures to cut "unnecessary costs" according to Minister Fowzie. One such way to save money, he said, was to import crude oil for refinement in large quantities instead of in small batches, to take advantage of discounted pricing.

The Minister said that this would save money on shipping and other costs, as opposed to "placing irregular orders, which is expensive." No explanation was offered as to why the CPC did not place bulk orders in the first place.

CPC Chairman Asantha de Mel also said in April that the Petroleum Corporation managed to earn US$ 7 million by hedging its raw oil with Citibank and Standard Chartered Bank to make up for losses in selling refined products for less than the value of the crude oil.

From the recent price increases, it is obvious that no benefit of the CPC's cost saving measures such as hedging, its dealings with oil giant Trafigura, and buying oil in bulk, is being passed on to the consumer.

Telling indicator

Another telling indicator of mismanagement at the CPC was that the Lanka Indian Oil Company (LIOC)  posted profits of Rs. 2.3 billion for 2007, only Rs.400 million less than those posted by the CPC, despite CPC running twice as many pumping stations as LIOC does, and engaging in refining activities.

It is understandable however that the Petroleum Corporation itself is not in a position to bear the losses of providing further subsidies to stabilise fuel prices, even if its house were in order. Such subsidies would ultimately have to be provided by the Treasury, which itself is burdened with soaring government expenditure.

While the government cannot spare money to subsidise fuel for its people in line with the policies of nearly all other SAARC nations, it has managed to spare over three billion rupees to squander on Mihin Lanka, war, and maintaining the world's largest cabinet of ministers.

With further price hikes in fuel slated to be in the offing, it would be interesting to see what measures the government will take to alleviate the effect of its price hikes on an already desperate and disgusted public.

Farmer organisations pick  up cudgels with govt. 

By Nirmala Kannangara

The government's intention to cut down the fertiliser subsidy has come under severe criticism by farmer organisations throughout the country.

General Secretary, Eksath Udara Lanka Jathika Govi Peramuna (EULJGP), Priyanka Dheerasinghe says that the government's intention was first to prune the fertiliser subsidy and later withdraw it completely.

"All the promises pledged in the Mahinda Chinthana prior to the presidential election were mere words and  pruning the fertiliser subsidy too is part of the broken promises," Dheerasinghe told The Sunday Leader.

Plan to increase

Picking holes in the government's plan to increase the price of a bag of fertiliser to Rs.1,200 Dheerasinghe said that the government fooled the paddy farmers in order to get their support in the run up to the presidential election in 2005.

According to Dheerasinghe, the paddy farmers had faith in Rajapakse and did not believe what the UNP Leader said about the fertiliser subsidy.

"When President Rajapakse promised to provide fertiliser at Rs.350 the UNP  said that it was not practical and promised to provide production concessions. Although, UNP Leader Ranil Wickremesinghe correctly said that the promises pledged by the UPFA could not be fulfilled and that it was only eyewash, the people believed Rajapakse," Dheerasinghe added.

Dheerasinghe further accused the government of supplying a bag of fertiliser at a lower weight and said that the Ceylon Fertiliser Company was therefore able to sell more than 1000 tonnes of subsidised fertiliser to private parties.

"When this was highlighted the chairman was removed immediately but still the officers who had a hand in this fraudulent and underhand deal are free. Although the promised bag of fertiliser should contain 50kg the farmers have complained that there was only 30-35kg  in these bags," Dheerasinghe alleged. According to Dheerasinghe, it was not only the prices of fertiliser but also the production costs that include pesticides, machinery, labour and fuel that compelled  paddy farmers to commit suicide.

"Before coming to power Rajapakse promised to put a halt to the suicides, but later when these cases of suicide by farmers were reported the Rajapakse administration quickly said that those suicides were not related to farming but were due to personal issues. In the future too if the paddy farmers commit suicide the government will say that they are  due to personal issues," charged Dheerasinghe.

Government accused

Meanwhile, accusing the government of failing to provide subsidised fertiliser to large-scale paddy farmers in Anuradhapura, Polonnaruwa, Ampara, Hambantota, Kurunegala and all other paddy farming districts in time, the EULJGP said that the delay had resulted in a poor yield in the farming regions during the past few seasons.

"The government has failed to provide the necessary fertiliser in time which resulted in a very poor yield. This also had put the farmers in a quandary. If as the government claims they had given the fertiliser subsidy then the farmers would have produced a bumper paddy harvest and the price of rice would have come down considerably," Dheerasinghe said.

Accusing Agriculture Minister Maithripala Sirisena of extending his support to his brother, Dudley Sirisena to sell rice stocks to Prima for poultry feed, Dheerasinghe further charged that unlike the previous regimes, the Rajapakse administration was always working to protect its supporters and not the general public.

"It was Deputy Minister Siripala Gamlath and Dudley Sirisena who suggested to the government to sell its paddy stock to Prima at a better price and this resulted in a severe shortage of rice in the country," claimed Dheerasinghe.

According to Dheerasinghe, the two government backed paddy mill owners have purchased the last Yala crop at Rs.16 per kg and had sold it to Prima at Rs.25.

"During the UNP regime in 2002-2004 the country produced an excessive harvest and the people were requested to consume rice for all three meals in order to save foreign exchange on wheat flour but the Rajapakse policy was completely different to that of the UNP's. Instead of protecting the general public the government has allowed its political stooges to make money by facilitating the export of rice at a higher price and thereby passing the burden directly to the general public," added Dheerasinghe.

He also said that in 2003 the country produced a bumper harvest due to the then UNP government's focus on increasing the paddy harvest.

Bumper crop in 2003

"In 2001 the country produced only 2.6 million mt. tonnes while 2.8 million mt. tonnes were produced in 2002. It was in 2003 that the country had a bumper stock of 3.04 million mt. tonnes of paddy. During that period the then government gave its fullest support to increase production but did not provide a fertiliser subsidy. That is why the Wickremesinghe government was able to increase production," Dheerasinghe pointed out.

However, Consumer Affairs Minister Bandula Gunawardena told The Sunday Leader that the government has no intention of pruning the fertiliser subsidy but since the paddy farmers have had their income increased by 100% due to the high selling prices compared to previous years they have requested the government to increase the fertiliser prices to avert any losses to the government.

"Although the price of fertiliser has gone up alarmingly, the government has no intention of cutting down the fertiliser subsidy. In 2003, a 50kg bag of fertiliser was sold for Rs.850 but President Mahinda Rajapakse was able to give a 50kg bag for only Rs.350 as promised. At that time a metric tonne was priced at Rs.12,000 in the market but now it has shot up to Rs.66,000," Gunawardena said.

According to Gunawardena, the farming community has benefited immensely from the UPFA government adding that in order to strengthen the hands of President Rajapakse the farmers have given their consent for a fertiliser price hike.

Farmers promote hike?

"Earlier the farmers received only Rs.10-Rs.17 for a kilo of paddy but now they get more than Rs.30 which is a 100% increase. So in that backdrop the farmers have decided to request the government to increase fertiliser prices," Gunawardena added.

However, when question on the allegations levelled against the government by the farming community that farmers representing one political party do not get fertiliser at the correct time and that they also get 30-35kg bags instead of a 50kg bag Minister Gunawardena denied these allegations. He said that it was the work of the opposition parties to bring the government to disrepute.

"I vehemently refute the charges but it is Minister Maithripala Sirisena who can give you the accurate statistics," he added.

All attempts by The Sunday Leader to contact Agriculture Minister Maithripala Sirisena and JVP Parliamentarian S. K. Subasinghe, failed.

Sri Lanka has highest fuel prices in S. Asia

Price comparison of India, Pakistan and Sri Lanka fuel prices (we're the highest)

The claims arising from all quarters of government that Sri Lanka's fuel price woes are in line with crises faced by other neighbouring nations ring hollow when a comparison is made on the ground realities of all South East Asian countries.

India, Pakistan, Malaysia, Indonesia and Myanmar all enjoy lower fuel prices than Sri Lanka.

The energy crisis has impacted negatively on First World countries in Europe and North America - where gas guzzling SUVs and other luxury vehicles are a common sight and also where most families maintain a number of vehicles with each member owning his/her own car.

Petrol and diesel prices in Pakistan and India are at present between 27%-31% lower than the price in Sri Lanka.

If you take your mind back to Myanmar's riots of last September when an international uproar followed in the wake of that government slaughtering a group of protesting Buddhist monks - the turmoil seen then was primarily due to the crippling impact on its economy when a 100% increase in the price of diesel was imposed - from a 'phenomenal' Rs.32 per litre to an 'unbearable' Rs.64 per litre.

Clapped out excuse

The rise in world oil prices - the standard excuse for all the price hikes in Sri Lanka - has been steady since the late 1990s.

Given the unprecedented price increases throughout 2007, the government's finance managers did not consider it prudent to take appropriate measures to cushion the impact these hikes would have on the public when presenting the 2008 budget - a timely step that other Asian countries took.

While heavily subsidising the price of fuel is not prudent monetary policy, allowing the price of diesel to virtually double, from Rs.67 a litre this time last year, and jacking up petrol prices by one third - a litre cost Rs.106 in May 2007 - is just asking for an economic disaster.

Other Asian countries having foreseen such price hikes have been prudent in maintaining their subsidies in order to protect not only their people but their burgeoning economies as well.

The Bangladeshi government bears the burden of a US$730 million subsidy and the Indian government absorbs losses in the range of US$16 billion in order to protect their economy and the populace.

Keeping prices stable

Even Vietnam has subsidies of over US$620 million per year in order to keep fuel prices from crippling that country's industry oriented economy.

The Indonesian and Malaysian governments absorb losses of over US$4 billion annually in order to keep their fuel prices stable.

These countries have the alternative of scrapping their subsidies and allowing prices of fuel to fluctuate with market rates, which will save them billions of dollars. But the manner in which they have managed their subsidies shows the extent to which they are willing to go to protect their tiger economies.

Consumer Affairs Minister Bandula Gunawardena's statement on Thursday that Sri Lanka is facing an economic crisis shared by the entire region sounds ludicrous considering that the rest of the region is actually doing something about it and helping its people.

There is no doubt that there is a crisis throughout the world but Sri Lanka is alone in South Asia in that the performance of its economic managers - compared with those in the region has been found severely wanting.

Perhaps the Sri Lankan government feels that the money saved is more valuable than the effect of stifling inflation and protecting the economy. Perhaps the government feels that the economy is in such a dismal state that it is not worth protecting.

More likely our fiscal decision makers wouldn't know what sound economic policy is even if it stung them where it hurts most.

Country heading for spiral inflation

Mahinda Rajapakse and Nivard Cabraal

By Mandana Ismail Abeywickrema

The most recent fuel price hike that has had a cascading effect on the prices of other consumer goods is now pushing the country towards spiral inflation.

According to the Central Bank, price increases in fuel in the local market usually have the effect of a 2-2.5% increase in inflation, which on Friday reached an all time high of 26.2%. The New Colombo Consumers' Price Index (CCPI(N)) was recorded at 26.2% for May. It was recorded at 25% in April.

Interestingly, the Census and Statistics Department has been "requested" by the Finance Ministry and the Central Bank to completely scrap the old CCPI, which recorded an inflation rate of 29.9% in April.

Although the government worked to scrap the CCPI that showed actual inflation, the rate of 26.2% was yet the highest to be recorded in the region.

The sustained increase in inflation and the cost of living have now created the possibility of the country experiencing the economic phenomenon known as 'spiral wage inflation.'

Economist, Dr. Harsha de Silva explained that a high cost of living always prompts an agitation campaign by the working class for a wage hike, which wage hike in turn causes another round of price increases and drives inflation further skyward.

Explanation irrelevant

He observed that the government and especially the Central Bank's inability to contain the level of inflation have made the bank's explanations on the present crisis irrelevant in the eyes of the public.

"The people who have seen the continuous increase in the level of inflation have now decided the only way to face the situation is to demand a wage hike, which is only fair from their point of view given the high prices of essential commodities," he explained.

The government's one time ally, the JVP has now warned of continuous agitation campaigns calling for an increase in salaries in the public, private and estate sectors.

JVP Parliamentarian and trade union wing leader, K.D. Lalkantha has said that the country has recorded the highest increase in the cost of living index between 2005 and 2007, since President Mahinda Rajapakse assumed office.

He says that the cost of living has increased to such a level that a minimum Rs.30,885 a month is required to maintain a five-member family.

"The index has gone up by 2000 points since the Rajapakse regime came to power. If Rs. 2.20 is given to each point the salaries of public servants should be increased by Rs. 5,000 a month," he has said.

Decisive months

Lalkantha has warned that the JVP would mobilise the masses to win these demands and said that the months of June and July would be decisive months for the working masses as their struggle to increase wages would intensify during this period.

However, with the working class agitating for a wage increase given the increase in the cost of living and inflation that has been intensified by the increase in fuel prices, Dr. de Silva warns that such a scenario would push the country into a dangerous cycle of spiral inflation.

He noted that the working masses couldn't be blamed for spiraling wage inflation if it takes place since it would be once again the result of the government's weak monetary policies which are not the fault of workers.

Be that as it may, neither the government nor the Central Bank has so far been able to contain inflation.

In fact, the Central Bank said in its Monetary Policy Review for the month of May that inflation would be higher than targeted in 2008 since the monetary authority found it difficult to counter the pressure from rising prices, especially oil.

"In these circumstances, there is a strong likelihood of the actual 2008 inflation figure being significantly higher than the previous estimates which were computed on the basis of crude oil prices during the year 2008 being at an annual average of around US$90," the Bank said.

The Bank further said that the continuous rise in international commodity and oil prices as well as domestic supply constraints, caused a higher than expected increase in inflation during the month.

Sky-high CoL

Since November 2005 the country has 'achieved' a sky-high cost of living and a level of inflation unmatched by any other country in Asia.

The government that has so far failed to fix all that is going wrong has only managed to trot out statistics and juggle around indexes that give low figures.

However, the increasing level of inflation continues to be a burning issue.

Analysts have also identified several reasons as to the cause of the rapid rise in inflation. Some of these include rising public expenditure (including for defence), increasing dependence on domestic borrowing by the government, depreciation of the rupee, rising world market prices for commodities (such as crude oil, wheat and milk powder), rising indirect taxes and suppression of interest rates.

Of all the predictions made by the Central Bank for this year, at least one has so far remained true. The sustained increase in the country's rate of inflation, which has now reached 26.2%.

Earlier in the year, the Central Bank had predicted 'high, double digit inflation' for the first half of this year saying inflation would be between 16% and 20%.

Serious doubts

The Central Bank's prediction cast serious doubts over the bank's ability to achieve the initially set inflation target for 2008 of 10 to 11%. The bank then attributed the upward movement in inflation since mid 2007, to the removal of the fuel subsidy and the increase in prices of imported food items.

It was also said that the pass-through of international price increases would have a favourable impact on containing inflation in the long term.

Nevertheless, the government as always blamed high oil prices to cover up its inability to contain the level of inflation.

The government has said it was a global problem as huge amounts of money were being spent on oil imports, resulting in 'imported inflation.'

SL badly affected

Interestingly, it is Sri Lanka that seems to be the most badly affected country in the region.

Economists have argued that although global oil prices do have an impact on inflation, it was not as much as the government has made it out to be, and have blamed bad financial management and the printing of money to meet rising government expenditure as key factors contributing to the problem.

They say that global prices do not have an impact on the level of inflation to the extent the government makes it out to be, especially since other countries in the South Asian region, which are also affected by the same high global prices, have managed to maintain single digit inflation.

Also, a special study paper prepared by the IMF titled Pass-Through Of External Shocks To Inflation In Sri Lanka, states that most of the country's inflation was not 'imported' or caused by oil. According to the study: "Since late 2006, Sri Lanka's inflation has increased sharply relative to other economies in the region," and "the sharp increase in inflation compared to other countries in Asia points out that increases in oil prices in the recent past (a common shock to most economies in the region) cannot explain most of the increase in inflation in Sri Lanka."

The study has shown that oil prices explained only 6% of the inflation in 2006 and 2007 when measured by the CCPI (N). "With external shocks not playing a major role in influencing domestic inflation, domestic policies can be very important in containing inflation," the study paper has further stated.

"External shocks appear to explain about 25 percent of the variation in consumer prices and about 32 percent of the variation in core inflation, suggesting that other shocks that are likely more domestic in nature explain most of the variation in inflation in Sri Lanka." Dr. de Silva says that the impact of oil prices is now being felt than earlier as the supposedly 'one time increase' now happens on a frequent level.

High inflation

However, he says that although every country feels the impact, it is only Sri Lanka that has recorded a very high inflation level of almost 30%.

In this backdrop, it is important to recognise that there are more internal shocks that have had an impact on the country's inflation level more than external factors.

According to Dr. de Silva, the only way to address the present situation was to tighten monetary policy. "Monetary polices are at the bottom of this whole crisis," he said.

Dr. de Silva, who has always called for the tightening of monetary policies said that the argument is now much stronger.

"There is no space now. You have to be very careful," he said.

"The government needs to cut down the wastage of funds and expenses have to be made as lean as possible," he warned.

He explained that Sri Lanka has to understand that although the food and oil prices were beyond the control of any government, other countries have managed to maintain much lower inflation levels than Sri Lanka.

Adjustments

Although the Central Bank initially dismissed calls for the need to further tighten monetary policies and revise its reserve money target, it finally made the necessary adjustments after the inflation level reached 26.2% in May.

The Bank said that in a bid to contain inflation, it has decided to further restrict its quarterly targets for reserve money through a downward revision for the remaining three quarters of 2008. "The slower growth path envisaged in the revised reserve money targets would also, in turn, curtail the expansion of the broad money supply further, thereby containing the demand driven component of inflation, ultimately containing further inflationary pressures.

"The Bank will continue to monitor developments carefully and may revise reserve money targets during the second half of 2008 as deemed necessary based on developments in inflation and real growth," the Bank said.

Dr. de Silva earlier said that the Central Bank's reserve money targets were incorrect and had the institution paid closer attention to constructive criticism, the level of inflation could have been contained to an extent.

"The country's growth was predicted to be 7.5% by the Central Bank and a certain amount of money was allocated to facilitate growth based on that figure. However, the growth was less than that, but the reserve money targets were not revised accordingly. This move caused inflation to increase further," he explained.

However, he noted that this was the best time for the government to push for reforms. "The government has no money and is calling for funds through bonds and Treasury Bills. This is the ideal time to move for reforms," he said. 

More vocal

The argument that the Central Bank needs to assert its role in building the country's economy and not work towards the survival of the government in power has become more vocal with the sustained increase in the country's inflation level. The irresponsibility of governance has to be changed and reforms need to be brought in, is the call that is gaining momentum.

The heavy politicisation of the Central Bank under the Rajapakse administration has been cited regularly as the main reason for its failure to act on its primary objective. In 2002, the Monetary Law Act was amended to ensure the independence of the Monetary Board of the Central Bank. The independence was to give the bank the strength to say "no" to the government of the day in order to stand by its primary objective of containing inflation.

Governance issues have hampered the independent functions of the bank. Three members of the five member Monetary Board of the Central Bank have to be appointed by the Constitutional Council, which is now defunct due to the President not appointing the members.

With the Central Bank unable to perform its primary objective due to politicisation, the country's economy is in peril and the lack of direction and economic mismanagement by the government is only aggravating the slide towards economic ruin.

Food crisis hitting north-east

Vulnerable groups cutting down on meals - WFP

Cutting down on meals has begun

By Amantha Perera

Sri Lankans prefer to sit on tinderboxes; they pride themselves on getting through the rough not only unscathed but possibly with gains. The sitting on the tinderbox ploy has worked for some but left the majority in the country scarred.

Onto the list of tinderboxes add the latest - the food crisis. Sky rocketing prices, high inflation and possible shortages are very real these days. It was just in April when rice sacks disappeared from  grocery stores and the supermarkets when the government imposed price controls.

Supermarkets announced that they were selling only Basmathi rice at Rs.190 per kilo. Everyone is talking of rising prices and with last week's midnight fuel price hikes, the pinch became even more potent.

Cutting down

While Colombo, the richest district in the country, may still feel insulated of the brewing crisis, there is no denying that people are cutting down, sometimes even on essential needs to survive for the day.

"If we fall sick, there will be problems, because we don't have enough money left to spend on food and medicine," Munnianddy, an office aide at Leader Publications said. "As things are its better to fall dead, than fall sick."

The poor are feeling the heat. Daily wage earners like Munnianddy are the worst off. Agencies working with vulnerable populations, not only in the north- east but elsewhere in the country also warn that cutting down on transportation, education and health are inevitable.

WFP survey

Last week evidence emerged that meals have been limited or curtailed among the most vulnerable groups - those who depend on food aid, a World Food Programme (WFP) rapid survey found.

"WFP's rapid survey of beneficiaries shows average expenses of 63% of income on food - an increase from 52% last year. Some 93% of the households adopt unsustainable coping mechanisms like reducing meal size, skipping meals, eating less preferred food, borrowing, and selling assets,"  a WFP Hot Spots report said last week. The survey was carried out in eight districts and was part of a plan to keep donors abreast of the situation.

With further price revisions on fuel last week, it is only a matter of time that cutting down spreads upwards through the lower wage earners in the country.

Food makes up the single, largest component on the monthly budget of Sri Lankans. The latest Household Income and Expenditure Survey 2006/2007 by the Department of Census and Statistics  says that it is 37.6% of the total expenditure which translates to Rs.8,641 on average.

"According to the survey the mean per capita consumption of rice is reported as 9.0kg. That indicates that a person needs 108kg of rice per year," the report said.

Sri Lankans spent 18.4% on housing, 13% on transport, 7.2% on fuel and lighting, 6.8% on personal care/health and 4.4% on education from their earnings. The survey results that came out in February are for end 2007. The spikes in prices and costs have been tremendous since end-2007.

Drastic increase

Between April 2007 and April 2008 rice prices have increased by 46% to 109% with the lowest being recorded by red rice while others recorded price gains between 70% to 90%. Samba increased by 102% or from Rs.41 to Rs.84.33.

"Price in food exhibited the highest positive index point change of 84.8," the department said in its Consumers' Price Index of the Colombo City report for end April, adding,  "the increase in the CCPI for April, 2008 is mainly due to an increase in prices of rice, Lactogen, salt, red onions, coconut oil, most varieties of fresh fish and dried fish, coconuts, eggs and most varieties of vegetables."

In the last three months electricity rates, fuel and bus fares have been increased.

The rise in food prices is also likely to have a telling impact on the war affected communities in the country in general, as the WFP survey has found. Already there have been warnings that daily wage earners will be the hardest hit.

"Fishing restrictions affect the livelihoods of residents in the northeastern districts, while local agriculture has decreased due to a lack of inputs. With few existing job opportunities, fishing, farming and labourer households have been unable to earn a regular income to cover the costs of their basic needs," the Central Emergency Relief Fund that falls under UNOCHA said last week.

"The recent rise in food and fuel prices is making life even harder for poor people already struggling to cope with the effects of war and internal violence," President, International Red Cross/Red Crescent Society, Jakob Kellenberger said, releasing its Annual Report in Geneva last week.

The WFP  in Colombo has said that it has incurred an increase of over 50% in procurement. A tonne of food that cost US$500 at the beginning of the year is now going at US$ 800.

The assessment was done before last week's fuel price revisions and is now likely to increase even further.

Cost of maintaining the world's biggest  cabinet

By Nirmala Kannangara

With a record number of ministers in the Mahinda Rajapakse government, Sri Lanka has become the only country with a cabinet minister for every 375,000 citizens, which far exceeds that of other countries in the world, a UNP parliamentarian said.

Government preaches

"If the government is really committed to reducing fuel consumption why can't they set an example by a minister using one vehicle instead of 15-20 at a time," charged the parliamentarian.

Since the perks of legislators have increased tremendously The Sunday Leader spoke to the Public Administration and Home Affairs Ministry to ascertain how much the government spends on maintaining the largest cabinet in the world.

Sources from the Public Administration and Home Affairs Ministry told The Sunday Leader 'off the record' that the vehicle usage of ministers had increased dramaticaly over the past two years.

Entitlements

"A cabinet minister, non-cabinet minister and a deputy minister are entitled to two official vehicles and two back-up security vehicles. But in reality every minister uses at least 10-15 vehicles apart from the back-up vehicles. Although most of the ministers use around 15 vehicles there have been instances where some have used around 50-100 vehicles. If there are any security threats to a certain minister then the ministry has to provide adequate security personnel, back-up vehicles and also different types of vehicles as a precautionary measure," the official added.

According to Ministry sources, all cabinet ministers receive a basic salary of Rs.65,000 a non-cabinet and deputy minister receive Rs.63,500 and a parliamentarian receives a basic salary of Rs.54,285. All of them receive a host of additional allowances.

"Apart from the basic salary an allowance of Rs.500 is paid for each parliamentary sitting and Rs.200 for attending a Select Committee meeting. Depending on how many days they attend parliament sessions and Select Committee meetings the allowances vary and the final package that a parliamentarian receives is more than Rs.100,000 per month. Ministers and deputies receive over Rs.130,000," he said.

Further, he said that every cabinet and non-cabinet minister is entitled to a monthly fuel allowance of Rs.75,000, a deputy minister is entitled to Rs.50,000  and  parliamentarians are entitled to Rs.29,000 depending on the distance to his constituency, before the recent price hike.

According to these sources, Rs.20,000 is allowed for a private land phone and Rs.10,000 for a mobile phone in addition to unlimited local and IDD facilities for official telephone lines every month.

Whims and fancies

On being questioned as to how much the government allocates for each minister's personal staff the sources said it depends on how many people the minister absorbs into his personnel staff.

"Sometimes ministers prefer to have their personal drivers in addition to official drivers. However, all are entitled to two drivers but these rules change depending on the number of vehicles. Most of the ministers employ their kith and kin as their private secretaries, coordinating secretaries and public relations officers," he said.

In addition every cabinet, non-cabinet and deputy minister is entitled to four secretaries. They are all entitled to official vehicles, fuel and telephone allowances and a limited entertainment allowance.

Meanwhile, a senior official from the Housing and Pensions Unit of the Public Administration Ministry told The Sunday Leader how houses are allocated to ministers which varied from their rank and threats to their lives.

"A minister who holds a responsible portfolio in government is given a residence in a well secured area while the others are given residence at the  Summit Flats or even in the heart of the city if he/she does not have a house in Colombo or the suburbs," the senior officer said. He added that the government spends Rs.100,000 on an official residence for a minister.

Against rules

It was revealed that ministers deploy their security to their private residence when they are not occupying it. "This is against government rules," an official said. Those who occupy the Summit Flats pay Rs.6,000 while occupants in Madiwela and Colombo 7 pay Rs.2,900 and Rs.8,000 respectively, as rent.

According to the sources, the electricity and water bills too are borne by the respective ministries which means that all 106 ministers are living in the lap of luxury, thanks to the downtrodden rate payers' hard earned money.

Knock-on effect of fuel price hike

By Nirmala Kannangara

The recent increase in fuel prices has had a cascading effect impacting on the prices of all consumer goods, The Sunday Leader learns. The fuel price hike is expected to bring an increase in electricity tariffs as well.

The Ceylon Electricity Board (CEB), which increased its tariff by 40% a month ago, is currently consulting the Finance Ministry on measures to avert losses in case tariffs are not revised.  If the Treasury fails to grant the CEB a subsidy it would have no option but to increase its rates. Power and Energy Minister John Seneviratne told The Sunday Leader that discussions with the Finance Ministry are in progress in this regard.

"The CEB depends a lot on thermal power generation. Although the fuel price hike has badly affected thermal power generation we have not yet decided whether or not to increase the tariff. The Power and Energy Ministry is in touch with the Finance Ministry to obtain some relief," added Seneviratne. He said the CEB has no intention of putting more burdens on the consumers adding that he expected to receive a fuel subsidy for the CEB.

"The government does not want to burden the masses and we expect to get a fuel subsidy to keep the same tariff. But it depends on the outcome of the discussion," Seneviratne said. "We can't forecast future outcomes," he added.

Naphtha sold out

The Jathika Sevaka Sangamaya (JSS), CEB branch told The Sunday Leader that the government's failure to use low cost naphtha oil as a substitute for diesel to generate cheaper electricity would result in another tariff revision in the near future. "The Ceylon Petroleum Corporation (CPC) sold its naphtha stock to a foreign country at a cheaper rate due to lack of storage facilities at Sapugaskanda. The government's failure to generate low cost electricity from naphtha oil led the CEB to increase tariffs by 40%. With the latest fuel price hike a tariff revision would compel people to go back to the stone age," charged the JSS.

According to JSS sources, CPC, despite expert advice, had sold out its entire naphtha stock at Rs.35 per litre in 2007 due to lack of storage facilities and is instead using diesel to generate power at double the cost.

According to experts, four electricity units could be generated from a litre of diesel whereas 5.5 units could be generated from a litre of naphtha. If naphtha was used billions of rupees could have been saved and consumers would have been the beneficiaries, it was pointed out.

Meanwhile private bus fares too were increased with effect from May 27 by 27.2% while the Sri Lanka Transport Board increased fares by 17%. The Railway increased fares by 7% from last week adding to the escalating CoL.

Compelled to increase

"In the past we increased prices once a year but since the government kept on increasing fuel prices and also  the prices of tyres, tubes and spare parts we urged the government to allow a fare revision every six months. As a result we were able to increase fares once in six months. Since the government increased the prices of diesel and petrol by Rs.30 we requested for the first time, to permit an increase in bus fares immediately or face the consequences," President, Private Bus Owners Association (PBOA), Gemunu Wijeratne told The Sunday Leader.

The Keells and Cargills supermarket chains told The Sunday Leader that there is a need for them to revise their prices.

"We were compelled to increase prices with the electricity tariff revision. Now with the fuel price hike there is no option but to increase prices to cover our costs," they said.

Cargills said that the fuel price hike would compel them to increase their prices. "Our prices would still be the cheapest despite the increases. We bring fresh vegetables and fruits from the peripheries. So our fuel consumption is high. But we don't want to burden our customers unfairly other than to cover up our expenses marginally," they said.

Keells too said that the electricity tariff revision introduced a month ago has had an adverse impact on its business. If there were a further electricity price hike, "we would have no option but to go for yet another price increase," Keells sources added. 

The All Island Three Wheeler Drivers Association told The Sunday Leader that trishaw charges too had increased following the price hike. "We were badly affected due to the fuel price hike as people now opt to travel by bus. According to our members their daily turnover has gone down considerably. People now travel in trishaws only in an emergency," they said.

Meanwhile, the government's failure to implement the Petroleum Resources Act No. 26 of 2003 has resulted in the unprecedented fuel price hike, Jathika Sevaka Sangamaya, Petroleum Branch (JSSPB) said.

The Petroleum Resources Act No. 26 of 2003 and the Special Regulation on Petroleum Products No. 33 of 2002 clearly states that a regulator should be appointed to monitor all petroleum products to regulate prices and the standard of all petroleum products. But the government's failure to abide by these laws has resulted in the present fuel price hikes, the JSSPB alleged.

"If there is a regulator to monitor petroleum products the general public would benefit through low cost fuel and gas. The regulator would have the authority to find out how much fuel and gas companies spend to purchase their products and how much the cost of imports would be. Once the expenses are calculated and the government's recommended profit is added, the regulator can fix the price. But now the government increases fuel prices according to its own whims and fancies to cover up other losses and the power of revising gas prices has been vested with the Consumer Affairs Authority," JSS Secretary Ananda Palitha told The Sunday Leader.

Government's burdens

According to Palitha, the CEB, police and the three armed forces, SriLankan Airlines, Mihin Lanka, CGR, SLTB, Lanka Electricity Company and government ministries owe the CPC several billion rupees.

"It was the Treasury that instructed CPC to release fuel to these institutions on credit and President Rajapakse as Finance Minister ordered these government institutions to pay CPC. Earlier the government boasted that the Treasury would absorb the losses incurred by the fuel subsidy to the CEB for thermal power generation without passing the burden to consumers. But the Treasury's failure to pay CPC its dues has resulted in huge increases in fuel prices to cover up these losses," Ananda charged.