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Sri Lanka Equity Forum » Stock Market Talk » Market-based Sri Lanka fuel, electricity pricing from December

Market-based Sri Lanka fuel, electricity pricing from December

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iadhrm


Equity Analytic
Equity Analytic
Market-based Sri Lanka fuel, electricity pricing from December


ECONOMYNEXT – Sri Lanka’s government has agreed to introduce automatic pricing mechanisms that ensure retail prices above cost-recovery levels for fuel and electricity by December 2016 under a deal with the International Monetary Fund (IMF).

These are among proposed prior actions, structural benchmarks and state enterprise reforms agreed under the $1.5 billion three-year Extended Fund Facility (EFF) agreement with the IMF.

Under the deal, the Ministry of Finance is to introduce an automatic fuel pricing mechanism that ensures retail prices above cost-recovery levels and a financial position of Ceylon Petroleum Corporation capable of covering debt service by December 2016.

The cabinet of ministers is to introduce automatic electricity pricing mechanisms that ensure retail prices above cost-recovery levels and a financial position of Ceylon Electricity Board capable of covering debt service by December 2016.

The reform of energy and other utility subsidies would entail the implementation of a formula-based automatic pricing mechanism for petroleum products, the government has told the IMF.

This would reduce the possibility of future financial losses by the CPC and avoid large adjustments in retail prices.

“We will also enact legislative reforms to ensure that the Public Utilities Commission (PUC) will have sole authority to set electricity tariffs in a cost-reflective manner,” the government said.

“Automatic fuel and electricity pricing mechanisms that ensure retail prices above cost-recovery levels and a financial position of CPC and CEB capable of covering debt service will be introduced by December 2016 (structural benchmark)."

The same mechanism will be extended for water tariff settings when the PUC starts regulating the water sector.

worthiness


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Automatic pricing mechanism determine the pricing level over break even point that means institutions will not face/accrue future losses. However, strict compliance to new regulations are to be met monitoring a subtle corruptions.

Consumers are benefited once global fuel prices are down. To pass the benefit to consumers every station has to display the changing prices as developed countries do. Reaction from public organisation frequent changes is unavoidable. 
Also, frequent changes to pricing mechanism is to be avoided in order to run the new method smoothly. One way of advancing lagging enterprises with modern technology if implemented correctly.

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