Sri Lanka fuel pricing framework under threat?

August 8, 2007 (LBO) – Sri Lanka's new fuel pricing formula, seen as crucial to maintain economic stability and low inflation, is under threat barely two months after it started as opposition groups mounted pressure on the government. Subsidizing fertilizer and energy, together with the internal conflict has been identified as key factors that undermine economic stability and drive inflation up in Sri Lanka.

Sri Lanka moved into a monthly fuel price adjustment formula last month and has made two price adjustments on June 29 and July 28, but a statement from a committee headed by Prime Minister Ratnasiri Wickremanayake promised no further price rises.

The committee gave the nod for monthly price adjustments just over a month ago.

"I have just returned to Sri Lanka from abroad and have not been notified, but if a statement was issued it must be true," Ceylon Petroleum Corporation Chairman Ashantha de Mel told LBO.

"This means the Treasury will have to pay subsidies to the CPC again."

The formula is seen by economists as being key to rein in an emerging balance of payments crisis and further increases in inflation brought on by rising demand pressure.

The government has also been urged to raise electricity