17 November, 2019

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Pricing Of Petroleum Products 

By Upatissa Pethiyagoda

Dr. Upatissa Pethiyagoda

One is confused. For an year or more, we have been promised a “Pricing Formula for Petroleum products”. The mountain labours, with no hint of a mouse.

The Sinhala equivalent (with unintended mirth) is “Mila Suthraya”. In common parlance, a Sutharaya (or Suthraya), means a trick, a deception, a delusion or puzzle, or a “Vijjawa”. 

One would have thought that it does not require an Einstein, a Hawking, Abdul Kalam or an Eliezer to come up with a “Formula”. Crude oil is imported and subject to a Fractional Distillation (at Sapugaskande). It is heated and separated in condensation towers into fractions. The Fuel Gas comes out at the lowest temperature, followed by Petrol, Naphtha, Kerosene, Diesel and the residue into Furnace Fuel, Lubricants and Tar (as sediment). Thus, considering the input of Energy required, Petrol should be cheaper than Kerosine which should be cheaper than diesel. This is not so, and is Part One of the “Suthraya”.

Gas should be the cheapest, but may be not so, because of extra costs in liquefying under pressure and bottling.

The breakdown of crude prices into components would be related to the relative percentages obtained. Still, allowing for this in pricing is not very advanced mathematics.

The recent lament of the President is that even he does not know can be significant. We are therefore not alone in being in the dark on this matter. The increase in the value of Crude Oil and the drastic devaluing of the Rupee are cited as the reasons. This is debatable. But even if true, this could be easily taken into account. 

In normal language, a “formula” means an equation with set terms, requiring only the numbers to be inserted. The main variables are the Crude Oil price and the percentages of the different products while apportioning the Energy costs. Depending on these two factors, the need may arise to deal with each product separately.  

Unless my reasoning is faulty, we are, as usual, being taken for a glorious ride. It is also an insult to the mathematical abilities of our citizenry. So low is the credibility in all organs of Government, who have a record of repeatedly duping us, that this is not just a further step in that direction. Incidentally, what has happened about the infamous “Hedging operation” which cost us dearly? Have the culprits responsible for this amateurish and criminal Scam been identified and duly punished?  Since by implication, the Corporation and Ministries concerned seem to be jointly responsible for this latest Scam, they deserve to be identified and compelled to call off this bluff?

 If the Petroleum Corporation is making losses despite ripping off the Public, they may look out for their inefficiencies, Fraud and Institutional incompetence. Meanwhile let us join the President in awaiting the disclosure of The Magic Formula.

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Latest comments

  • 1
    0

    My friend, in most of the countries the petrol price fluctuates per the prevailing market price. So it goes up or down instantly per market rate. Why we wait that long, and barden the people with taxes to recoup the CPC’s losses. Either the treasury or the state banks funds them, and this is people’s money. All states businesses should be privatised – 51% shares should be with the treasury, 35% should be sold to the public and the rest should be given to the employees. This would bring greater transferrncy when they report their annual reports and other fillings they make to the stock exchange, and push them to up their acts to maximise their value to their stake holders, and would put a big stop to draining the public resources. At present non of them make any report to anyone, it all being like the private property of the ministers. The public is paying dearly and facing untold hardships.

  • 1
    0

    Energy cost is the biggest constraint to economic development and to industry due to the two state white elephants namely the CEB and CPC.

    Successive govts have dodged the issue of reforming these institutions. Further almost all subject Ministers have abused these Ministries to their personal gain and the reason why such Ministries are a hot pick when Ministries are allocated.

    The multiple trade unions at CEB and CPC are a law to themselves and have to be dealt with an iron fist and no reforms would be possible without such action. This includes the Engineers Union at CEB as well.

    For decades we have been discussing the break up of CEB into three units namely Generation, Transmission and Distribution but no GOVT has had the balls to do this and to ensure competition and improve efficiency and productivity.

    CPC mafia including the political henchmen would ensure sufficient “spot” purchases are done to milk the organization to their own benefit.

    Both the institutions are heavily overstaffed and the minimum pay for an office assistant/ peon could be Rs 60,000 with allowances for a month and this is equivalent to the pay of the Auditor General of the country!!

    We have no hope !!

  • 0
    0

    Be transparent and disclose the formula

    • 0
      0

      Dr. Pethiyagoda,
      The actual price formula probably contains more variables than we might expect. Like cigarettes and alcohol, fuel is a big money-spinner for the govt. Then there is the consideration that too many vehicles cause traffic jams. So fuel cannot be too cheap. Then there is the need to keep the CPC competitive with IOC, which imports its petrol from Singapore at about Rs.40 less than the antiquated refinery can do it for CPC. So there is a tax on IOC petrol. Then there is the need to sell kerosene below cost, which loss is recovered from other products, like aviation fuel, which is now the most expensive in the region.
      Still, our petrol is cheaper than in India, where it is going at about 200 LKR /litre.But even at that price, Indian trishaw charges are less than ours!
      As to the President being mystified about the formula, I don’t think we should expect too much mathematical ability from him.

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