Sri Lanka hikes fuel prices by 25% amid West Asia conflict

Colombo: The Sri Lankan government on Sunday raised fuel prices by around 25 per cent, the second such increase in a week amid the West Asia conflict.

The step comes in the backdrop of the joint US-Israel strikes against Iran and the retaliation by the Islamic nation that has spread to the entire Gulf region. It has led to the closure of the Strait of Hormuz, a strategically important choke point for the world's energy supplies.

The island nation's government hiked fuel prices effective midnight as the conflict, which has roiled global oil markets, entered its fourth week. The price of auto diesel rose 26.1 per cent from Sri Lankan rupees (LKR) 303 to LKR 382, super diesel 25.5 per cent from LKR 353 to LKR 443, petrol 92 octane 25.6 per cent from 317 to 398, petrol 95 octane 24.7 per cent from 365 to 455, and kerosene 30.8 per cent from 195 to 255.

The price hike, caused by the conflict, is the second in a week and the third since March 1.

With the cost escalations, the fuel retail prices are set to return to the levels of the 2022 economic crisis, when Sri Lanka declared its first-ever sovereign default since gaining independence from Britain in 1948.

The unprecedented financial crisis led the then-president Gotabaya Rajapaksa to quit office in 2022 amid civil unrest.

Due to the extensive fuel price hike, non-state bus operators in the island nation on Sunday warned that 90 per cent of their fleet may be off the road.

“This is the biggest rise of diesel ever, we will not be able to operate buses without an adequate fare revision. We need a minimum 15 per cent fare hike to stay afloat,” Gamunu Wijeratne, the chair of the private bus owners’ association, told reporters here.

The Lanka Private Bus Owners’ Association announced a nationwide strike if the scheduled bus fare revision was not officially announced.

Following this, the National Transport Commission (NTC) said that the latest diesel price increase, when applied to its bus fare formula, translates into a rise of more than 10 per cent in current bus fares.

In a statement, NTC Director General Nilan Miranda said Cabinet approval is scheduled for Monday to implement the revised bus fares in line with the formula, The Daily Mirror newspaper reported.

Private owners dominate the public transport service with a market share of 65-75 per cent. The state fleet share is around 25-35 per cent.

The three-wheeler taxi operators, dominated by Indian Bajaj, said the price of commonly used petrol was also raised to nearly LKR 400 per litre.

“Who would want to ride with us at this rate?” asked a three-wheeler operator.

Apart from the state fuel entity Ceylon Petroleum Corporation (CPC), the Lanka IOC (LIOC), IndianOil’s subsidiary in Sri Lanka, China’s Sinopec, and Australia’s United Petroleum are in the fuel retail market. In line with the CPC revision, LIOC and Sinopec also revised their retail prices, media reports said.

According to the opposition, the government gains LKR 119 in taxes for each litre of petrol, while diesel is taxed at LKR 93 per litre. The taxes must be scrapped to grant relief to the public, it said.

Analysts say the fuel price hike would cause inflation to go up by 5-8 per cent.

Earlier in the day, government spokesman and minister Nalinda Jayatissa said that despite the recent fuel price hikes, the government is still incurring a monthly cost of Rs 20 billion by subsidising Rs 100 per litre of diesel and Rs 20 per litre of petrol.

The minister said that in the absence of the fuel revision, the government would have had to bear an additional burden of approximately USD 1.5 billion.

He urged the public to consume electricity and fuel "mindfully" and limit energy consumption to a "minimum”, and warned against hoarding fuel and sought information on such attempts.