Sri Lankaâ€™s economy and the fuel crisis
Wastage: Traffic jams cause an appreciable waste of fuel amounting
to around Rs. 2 billion per year.
ECONOMY: The most current problem the country is facing is the
fuel crisis, which is likely to have extremely undesirable
repercussions. A large sum is spent on importing petroleum to Sri Lanka.
It has increased from Rs. 75.6 billion (US$ 838 million) in 2002 to Rs.
215 billion (US$ 2070 million) in 2006, nearly a 180% increase over the
last five years.
The world market price of crude oil has increased substantially and
it may continue to increase according to newspaper reports. As a result
it is likely that our annual fuel bill will be around Rs 250 billion in
the current year.
The total annual export earnings from tea, rubber and coconut is only
around Rs.100 billion. Thus, our annual fuel bill is even more than what
we earn annually by exporting these crop products. High oil prices will
widen our trade deficit which was around Rs. 350 billion in 2006.
If we consume petroleum products at the current rate, at least an
additional US$ 500 million (Rs. 50 billion) will have to be spent.
Hence, it is essential that the consumption of petrol and diesel be
The local prices of diesel and petrol too have increased considerably
during the last few weeks, causing an increase in cost of almost
everything including bus and train fares and power, ruining the whole
economy of the country.
The cascading effect of increasing fuel prices, specially the price
of diesel is causing considerable economic hardships to the poor. The
buying power of their meagre incomes have decreased considerably which
have made the life of a large number of them miserable.
If the present opposition is in power, they would have implemented
the proposals of Regaining Sri Lanka causing even severe hardships to
the poor but, the current fuel crisis and its undesirable effects have
given the opposition a good opportunity to protest.
Economistsâ€™ views: Some economists have been analysing different
aspects of the problem of increase of petroleum prices, but without
pragmatic, people friendly solutions to the problem. The easiest action
to mitigate the increase in fuel prices in the world market, as
suggested by some economists, is to increase local fuel prices.
They recommended that the fuel prices are made equal to the world
market prices. With the world fuel prices increasing almost daily, is
this recommendation practicable? What will happen to prices of essential
items? It will continue to rise, not proportionate with the cost of
fuel, and remain at a higher level even if the fuel prices drop.
Increasing diesel prices will have a corresponding effect on the cost
of production of all our exports including tea, rubber, coconut and
garments etc, resulting our exports uncompetitive in the world market.
Most of the farmers, who constitute nearly 60% of the population, do not
get any regular income.
If their buying power is reduced the demand for industrial products
will decrease causing further retardation of the economy of the country,
setting a vicious circle. Hence, it is important that all the
undesirable effects of increasing fuel prices should be given
consideration before increasing fuel prices.
Stabilisation of diesel prices
What is important now is to stabilise the local prices of diesel,
which is used in many productive functions such as transport of public
and goods, electric power generation, factory operations etc. It will
negate most of the undesirable effects of increasing fuel prices.
At the present level of fuel consumption the total amount necessary
to stabilise diesel prices will be around Rs. 20 billion per year.
A portion of the finances necessary for this may be obtained by
taxing heavily (such as a diesel tax) those who use diesel vehicles
except buses and lorries. If diesel prices are increased, the owners of
these diesel vehicles in any case will have to pay more. Hence taxing
them is reasonable.
The Government also needs to provide funds necessary for
stabilisation of diesel prices. This is far better than increasing
salaries, providing other benefits in lieu of high fuel prices and
facing the protests of the people. For a start, and for the sake of the
country, the total cost of subsidising food in the Parliament can be
used, to stabilise diesel prices. By stabilising diesel prices, the rise
in cost of living can be reduced to a great extent and the deterioration
of the economy can be retarded.
Reducing fuel consumption
While the diesel prices are stabilised, it is essential that action
is also taken to reduce fuel/power consumption in the country.
Otherwise, as indicated elsewhere, the trade deficit will continue to
rise. In many other countries such as China, Thailand action has already
been taken to reduce fuel/ power consumption and cut down wastes. If we
reduce our power consumption by 10%, it will result in a saving of Rs 20
billion in foreign exchange.
It has been reported that traffic jams cause an appreciable waste of
fuel amounting to around Rs. 2 billion per year. All this can be saved
if a realistic and concerted effort is taken by the Police and other
relevant authorities to reduce traffic congestion.
Many factors such as heavy vehicles, including lorries and
containers, on roads during the times of heavy traffic, roaming cattle
in some roads in Colombo, undisciplined drivers cause traffic
congestion. Staggered office times and a change in school times would
reduce traffic congestion to a considerable extent.
The amount of power used to pump water, an appreciable portion of
which is used to wash vehicles, flush toilets etc. is substantial. Roof
rainwater harvesting to obtain water for such purposes would reduce
power used by National Water Supplies and Drainage Board in pumping
water. About 65% of electric power is thermal and diesel is used as the
Consumption of electricity in public offices can be reduced to a
considerable extent if the Heads of such Institutions are asked to take
immediate action to cut down excessive/unnecessary use of electricity.
Studies conducted in many countries have found a number of
alternatives to petroleum. Vegetable oils (bio fuels) such as Soya oil,
rape seed oil etc. are such alternatives for diesel. Ethanol is the most
widely used alternative fuel. It is used extensively in countries such
as Brazil, India, Canada etc.
Automobiles powered by gasohol (gasoline and alcohol) are widely used
in these countries. In US for example, around 6 billion litres of
Ethanol, are used to blend gasoline.
Ethanol can be made from high starch containing crops such as manioc
and maize, or high sugar containing crops such as sugarcane. These crops
are cultivated in Sri Lanka. Around 10 million litres of alcohol are
produced annually at Pelwatta and Sevanagala sugar factories. These can
be used to blend petrol and used at least in three-wheelers so that
those who use them need not pay higher fares.
Urban wastes can be used to produce bio-gas which can replace LP gas
used for cooking. Dendro-power using fast growing nitrogen fixing trees
such as glyricidia and Leuceana, and solar-power are also potential
Thus, there are many alternatives to petroleum. Unfortunately, in Sri
Lanka, development planners and scientists have not given much thought
to the need for development of alternate sources of energy.
It is high time that early action is taken to examine the different
ways of solving the problem of fuel crisis and implementing appropriate
actions, rather than simply increasing local fuel prices, as suggested
by some theoretical economists, which would result in many problems to
the people and to the Government.