January 2, 2013, 8:08 pm
Central Bank Governor Ajith Nivard Cabraal has urged the government to allow domestic electricity and fuel prices to reflect global realities.
Following decades of populist policies of successive governments, electricity and fuel continue to be heavily subsidised, burdening the economy, making it vulnerable to external shocks and making fiscal and monetary policy implementation difficult.
"There has to be a greater pass-through of energy and transport prices," Cabraal said yesterday (02) unveiling the ‘Road Map for Monetary and Financial Sector Policies for 2013 and Beyond’.
"Credit to the public sector was higher than expected last year (2012), especially to the Ceylon Petroleum Corporation (CPC) and Ceylon Electricity Board (CEB). We would have preferred if such credit was not provided, but there is a problem as these institutions continue to sustain losses. This cannot be sustained. There has to be a change and this can only come about if prices are allowed to be adjusted. This is something we hope the government would seriously consider this year," Cabraal said.
Electricity tariffs and domestic fuel prices were revised upwards last year following a slew of policy measures to contain a balance of payments problem, which included credit ceilings and monetary policy tightening.
"Credit to public corporations increased by around Rs. 63 billion in 2012 in spite of significant price revisions. The bulk of the increase was due to credit extended to the CPC and CEB," Cabraal pointed out.
"The CPC sells fuel at a loss to the transportation sector and supplies fuel to the CEB for electricity generation at well below cost," he said.
With oil imports accounting for over 25 percent of imports, Cabraal said a move towards sustainable and renewable energy was an important factor in the future progress of the economy.
In 2011, the CPC and CEB incurred a combined loss of Rs. 119.5 billion: the CPC made a loss of Rs. 94 billion while the CEB loss was Rs. 25.5 billion.
In 2010, the combined loss amounted to Rs. 22.2 billion with the CEB recording a profit of Rs. 4.8 billion and the CPC reporting a 27 billion loss.