Lanka IOC, a unit of the Indian Oil Corporation, also piggy-backs on CPC pricing.

Low cost fuel

Petrol is usually the cheapest refined product to import.

According to data released by Sri Lanka's central bank, the Singapore wholesale price of refined petrol was 77.70 dollars a barrel yesterday, diesel 78.15 dollars and kerosene the most expensive at 78.40 dollars a barrel.

With the exchange rate at 115.10 rupees to the dollar, the wholesale price of petrol was only 55.89 rupees a litre, indicating that Ceylon Petroleum Corporation was selling petrol 232 percent above the wholesale price.

The Singapore price of diesel was 56.21 rupees, indicating that at 73.0 rupees a litre, diesel is retailed 129.8 percent above the wholesale price.

The import and distribution cost of all fuels are roughly the same.

Tax 'loss'

In a bizarre development some official spokesmen have claimed that the government is incurring a 'loss' on fuel sales.

The so-called 'loss' comes from high taxes on fuel which goes to the Treasury. According to industry officials the tax on petrol is around 75 rupees a litre and 27 rupees on diesel.

Petroleum retailers are also caught in speculative derivative deals at higher prices.

Petrol is mostly used by small car owners and 1.76 million motorcycle owners. The fuel is also used by some 406,000 commercial three-wheeler operators.

Diesel is used by rich sections of society including politicians who drive luxury jeeps, and commercial bus and transport contractors.

Wrong Incentives

Late last year fuel users went to court against petrol over-pricing, but the government defied a court order to cut petrol prices, cutting the diesel prices more.

In the latest price revision, kerosene, which is the most expensive refined product to import, is retailed at 51 rupees, which is below cost.

By under-pricing kerosene, the government has encouraged its use in agriculture and fishing, rather than petrol, which is cheaper to import.

During some parts of the year when the so-called 'crack margin' widens, petrol is 10 to 15 rupees a litre cheaper than diesel and kerosene.

By pricing diesel lower than petrol, policymakers have also encouraged the use of diesel driven vans for private use.

But diesel cars are taxed at rates higher than petrol vehicles at the point of import.

The tax payments from heavier diesel vehicles, which cause more damage to roads is also lower than light vehicles such as motorcycles and three-wheelers which cause less damage to roads.