By The Pulseline News Desk
The Government has approved a Rs. 41 billion fuel subsidy for the next three months, stepping in to cushion consumers from a fresh surge in global petroleum prices as Sri Lanka approaches its next fuel price revision.
Cabinet Spokesman Minister Nalinda Jayatissa confirmed the decision during a political talk show on television, following Cabinet approval under the chairmanship of President Anura Kumara Dissanayake.
The subsidy, covering October, November and December, was announced by President Dissanayake at a public rally in Gampaha on Sunday as international oil prices climbed sharply amid escalating tensions in the Middle East.
The intervention marks another attempt by the Government to shield domestic consumers from the immediate impact of global energy price volatility, while Sri Lanka continues to operate a market-based fuel pricing mechanism.
Diesel prices emerge as key concern
Energy Minister Anura Karunathilaka has said the Government was seeking to keep diesel prices unchanged at the next revision, scheduled for this week.
“We are trying to keep at least the diesel prices steady,” he has said on the sidelines of a media briefing, noting that international prices had risen to around US$110 a barrel.
The Minister has said that without intervention, the Government would have to consider providing a subsidy to prevent the full increase from being passed on to consumers.
The next fuel price revision is expected by Wednesday (30).
International diesel prices have risen substantially compared with earlier this year, while petrol prices have also increased. However, domestic fuel prices have moved at a slower pace, according to Government ministers and officials.
IMF programme creates a policy dilemma
The latest subsidy comes against the backdrop of Sri Lanka’s commitment to a market-reflective fuel pricing mechanism under its International Monetary Fund (IMF) programme.
The mechanism is intended to ensure that domestic fuel prices broadly reflect movements in international petroleum prices, exchange rates and other costs, reducing the fiscal burden on the Government and the Ceylon Petroleum Corporation (CPC).
The sharp increase in global oil prices, however, has created a difficult policy choice for the Government.
Passing the full increase to consumers could raise transport and business costs and add further pressure to household budgets. Absorbing part of the increase through a subsidy, meanwhile, could place additional pressure on public finances and the CPC.
The Rs. 41 billion allocation therefore provides short-term protection against the international price shock but also raises questions about how long such support can be sustained if global prices remain elevated.
Relief for consumers, pressure on CPC
Under the latest programme, the Government is expected to provide financial support to the CPC to offset part of the higher cost of imported fuel.
The Government had previously introduced fuel subsidies during an earlier three-month period, providing assistance on diesel and petrol to limit the impact of international market fluctuations on domestic consumers.
The latest intervention is similarly intended as temporary relief for consumers and businesses.
However, the scale of the new allocation highlights the fiscal consequences of protecting domestic fuel prices when international petroleum costs rise sharply.
Middle East tensions add uncertainty
The surge in oil prices has been driven by heightened tensions in the Middle East, increasing uncertainty over global energy supplies and prices.
For Sri Lanka, which relies heavily on imported petroleum, sustained high global prices could feed through not only to fuel costs but also to transportation, electricity generation, logistics and the prices of goods and services.
The Government is therefore attempting to contain the immediate impact while maintaining the broader framework of its economic reform programme.
With the next price revision due in a day, the Government’s decision on diesel will provide an early indication of how it intends to balance consumer protection against the fiscal and policy constraints imposed by the market-based pricing system.
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