"At the current economic conditions, fuel subsidies cannot be given on the long term," minister Yapa told reporters Saturday, following a fuel price hike midnight Friday.
Octane-90 auto diesel was raised by 3.0 Sri Lanka rupees to 162.00 litres, Octane 95 by 3.0 rupees to 170, auto diesel by 6.0 rupees to 121.00, super diesel by 3.0 rupees to 145.00 rupees a litre from midnight Friday.
LankaIOC, a unit of Indian Oil Corporation also raised petrol prices. It was already selling diesel at 121 rupees a litre.
Low sulfur furnace oil which is now sold to Ceylon Electricity Board, Sri Lanka's state-run power utility at 75 rupees a litre will be raised to 100 rupees, and high sulfur furnace oil to 90 rupees from 65 a litre with effect from April 2013, minister Yapa said.
Sri Lanka's power regulator, the Public Utilities Commission had already set in motion a process to raise power prices.
He said CPC was still expected to end the year with a loss, but was hoping to break-even the following year.
Loans taken by state energy utilities from banks which were ultimately accommodated by through central bank credit (printed money) drove Sri Lanka into a balance of payments crisis.
Diesel was last raised in February 2012 as part of measure to end a balance of payments crisis which weakened the rupee from 110 to 134 to the US dollar.
Analysts say marketing pricing all imported energy is vital to keep credit expansion down, the exchange rate stable and inflation low.
In 2012 the CPC lost 89 billion rupees, almost the same as 94 billion rupees in 2011 or about 1.4 percent of gross domestic product.
"There is a limit we can borrow from banks," minister Yapa said.
Petroleum ministry secretary R H Samaratunga said CPC had 410 billion rupees in loans due to banks denominated in rupees and dollars. About 293 billion was on account of past losses and about 120 billion rupees was for on-going working capital he said.
The CPC was also in trouble due to so-called 'circular debt' where state entities run up arrears to each other as part of a deficit spending strategy.
State entities led by the Ceylon Electricity Board owed the CPC about 100 billion rupees, which had to be financed by CPC with bank debt.
The power sector owed CPC about 38 billion rupees with the CEB in arrears by 24 billion rupees and independent producers the balance, Yapa said.
Minister Yapa said the CPC was still losing about 10 rupees on the sale of diesel after paying taxes. LankaIOC officials on the other hand estimate a loss about 5 rupees including indirect costs.
Last year CPC had paid 18,000 rupees in interest to banks, chief executive Susantha Silva said.
CPC also had 6,600 employees on roll due to the utility being stuffed with supporters of Sri Lanka's elected ruling class.
Minister Yapa said he would not stuff the utility with excess workers and only essential technical grades will be hired.