Moneycontrol | Sri Lanka has removed a lot of fuel subsidies to survive economic crisis: Power Minister

Feb 06,2023

The Sri Lankan government has done away with a lot of fuel and energy subsidies in order to survive the ongoing economic crisis, the country’s Minister of Power and Energy Kanchana Wijesekera said on February 6 at the India Energy Week in Bengaluru.

Meanwhile, his Indian counterpart Hardeep Singh Puri added that ‘subsidy has to be used when it has to be used’.

“I won’t go to the extent of saying that the Government of India has done away with subsidies, that’s too strong a statement because that comes in somewhere…. What we have demonstrated, however, is subsidy has to be used when it has to be used,” said Puri, the Minister of Petroleum and Natural Gas, while speaking at a panel discussion titled ‘Price and supply volatility’ at the same event.

The Sri Lankan Energy Minister’s words come in at a time when the country has been undergoing a tough economic crisis since April 2019.

The island nation saw protests that started in the capital Colombo, and spread across the country as citizens struggled with daily power cuts and shortages of basics such as fuel, food, and medicines. Experts say that the country’s Inflation is presently running at more than 50 percent.

“The other initiative is to introduce a management system to ensure we stay connected with the finance ministry, and the central bank to discuss and get an estimate on what to set aside for energy imports…Through the management system and estimate, we introduced a quota system where we have a guaranteed weekly quota for every consumer with our existing reserves,” Wijesekera said.

Wijesekera also acknowledged the Indian government’s support during the crisis.

“Without the support of the Indian Government and the people of India, we wouldn’t a survived the last 12 months. India has helped Sri Lanka in many things including coal supplies and other imports. Indian Oil Company played a vital role in the previous one year, fulfilling almost all the requirements we had in Sri Lanka,” he said.

India and fuel subsidies

A drastic rise in international oil prices in 2022 led the Union government to extend financial support to oil marketing companies (OMCs), which was seen as indirect fuel subsidies.

While crude oil prices were the lowest and even went to a negative zone in 2020 during the pandemic and turned highly volatile since then, rising to a 14-year high of nearly $140 per barrel in March 2022 after Russia invaded Ukraine.

Price Freeze History

Despite volatile prices, state-owned fuel retailers Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL) froze petrol and diesel prices including daily price revisions in early November 2021.

The freeze continued into 2022 but the war-led spike in international oil prices prompted a Rs 10 a litre hike in petrol and diesel prices from mid-March. While consumers were insulated, the three firms suffered a combined loss of Rs 21,000 crore in the first half of the 2022-23 fiscal year, and reforms took a backseat.

Puri on subsidies

“First off petroleum and diesel were deregulated in 2010 and 2014…the central government took a far-sighted and very bold decision of reducing excise duty on petrol and diesel by Rs 13 per litre from Rs 16 per litre at a time when states were spending a lot of subsidies on consumer spending,” Puri said.

Puri also said that India has demonstrated time and again that subsidy has to be used when it has to be used.

“I think no matter where it is if you are having a system of disequilibrium in terms of the amount of energy coming into the market versus the demand, you are going to have volatility,” he added.