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PUCSL director general Damitha Kumarasinghe said the regulator would allow reasonable costs to suppliers but will not allow 'inefficiencies' to be passed on to the customer.
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However if there is a government policy to keep prices low, subsidies will have to be provided to the suppliers, he said.
Analysts have said credit funded subsidies to energy is one of the biggest threats to Sri Lanka's economic stability.
In 2011, credit funded subsidies added to a credit bubble eventually triggering a balance of payments crisis. Changes to the governing act of Sri Lanka's state-run Ceylon Petroleum Corporation and another law dealing with petroleum products has been drafted and referred to the attorney general for final approval, petroleum ministry secretary R H S Samaratunga said.
He said the Public Utilities Commission of Sri Lanka (PUCSL) will regulate pricing and quality aspects of the petroleum sector once the changes are done.
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Jayatissa de Costa, chairman of Sri Lanka's Public Utili