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Saturday, 25 February 2012

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Pathos over oil prices

There is much talk of oil prices in the country now. It cannot be said that this does not affect people. It is especially felt by the low income earners. Sri Lanka is being considered as a Middle Income Earning country.

Compared with many countries in the world, our price of oil is still less than those countries. In terms of the Sri Lankan rupee value, the price of a litre of petrol in India, in New Delhi is Rs. 152. In Singapore it is Rs. 204.65. In Thailand it is Rs. 140.08. Although oil price has increased today in Sri Lanka, there were times when the people of this country paid more than this amount for their oil.


Pumping petrol. Picture by Saman Sri Wedage

When the price of a barrel of crude oil was US $ 98 in the world market, we have paid Rs. 157 for a litre of petrol, Rs. 110 for a litre of diesel and Rs. 88 for a litre of Kerosene. Even if the petrol litre goes up to Rs. 149, it will be Rs. 8 less than that price. Only Rs. 5 has been increased to a litre of diesel. A precious life has been lost for just Rs. 5. If the people are dragged on to the roads, there is a possibility of losing more lives.

Global economy

Holding demonstrations is a basic right of the people. But demonstrations leading up to destruction of official residences of judges and Police Superintendents and threatening the life of their children cannot be termed as democratic. Politicians question the cost of living when they are in the Opposition and blames it on globalization and the global economy when they are in the government. Traditionally, this is how Oppositions and governments act when they are in different circumstances. Sometimes the innocent persons who participate in demonstrations are unable to comprehend it.

Oil consumption

However, in a situation like this it is better to develop the purchasing power of our people and their ability to purchase rather than comparing our oil prices with the prices prevailing in other countries.

Similarly, it is important to give priority to the lowest rung of people in the country. Also it is better to understand the priorities of the economy and make expenses economically with a consciousness of our capabilities. Although we talk of a history of 2,500 years it seems that we have not yet grasped the cost effectiveness imbedded in it.

The value of the world economy in 2010 was US $ 75 trillions. The value of our economy in that year was US $ 50 billion. In 2005, the value of the world economy was US $ 50 trillion. It has grown by US $ 25 trillion between then and now. As a percentage it is an increase by 50 percent. Compared with that we have an economy to the value of US $ 50 billion. Also we should not forget that we have obtained a loan of US $ 2.6 million from, the International Monetary Fund.

The volume of our oil consumption has increased. By now one in five persons of this country own some kind of vehicle run on oil. It was 4,479,732 by the year 2011. In that context we are a richer nation than our neighbour. The vehicle imports of this country have increased by 100 percent in 2011 compared to the number of vehicles imported in 2010. (In 2010 we imported 23,072 vehicles and whereas in 2011 we have imported 57, 886 vehicles). Due to the non depreciation of the rupee value against the US dollar, the wealthy were encouraged to import vehicles and to purchase gold in large stocks. Therefore, the import of oil guzzling vehicles also increased.

COPE report

In 2011 the number of vehicles registered amounted to 525,421. Under these circumstances within 11 months in 2011 our import expenditure amounted to US $18.4 billion. But the export revenue amounted to US $ 9.6 billion. In order to fill this gap, it has become necessary to find an additional amount of US $ 8.8 billion.

It is in such a background that the oil prices and imposition of sanctions on Iran emerge through the world market. Under these circumstances, if the country is to supply oil and electricity at the same price the government will have to incur a loss of Rs. 189 billion in 2012.

The government had to incur a loss of Rs. 89 billion during 2011 under the old prices of oil. Even with COPE report and the Hedging deal, the Ceylon Petroleum Corporation incurred a loss of Rs. 89 billion due to the sale of oil on loss making basis. This loss had to be incurred by selling oil at a concessionary price to the people and by the sale of furnace oil to provide electricity to the people at concessionary rates.

Ten years ago, our export income amounted to 27 percent of the GDP. It has fallen to 17 percent at present. The export development should be calculated not by the depreciating rupee notes.

It should be calculated as a percentage of the GDP. Accordingly we are in a backward position. When a country like Vietnam which is attempting to rise after a prolonged war similar to our country gets US $ 8 to 10 billion as Foreign Direct Investments, we do not even get even one billion.

Therefore, it has become vital to understand our priorities. What we need is a serious and open discussion to identify an economic policy suitable to our country through the open economic mechanisms. Countries such as Brazil have formulated their economic policy positively to reduce the gap between the haves and have nots.

The gap between haves and the have-nots in our country is more than that which prevailed in the decade of 1970-1980.

The Opposition tries to have some joy over the government's problems. This traditional argument has become bitter to many people. What we need is an economic road map that views things devoid of hate and which would not change from government to government even under globalization. Under such a programme the wastage and corruption can also be minimized. It is the government that should take the leadership in this.

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