Lanka IOC, a wholly-owned subsidiary of Indian Oil Corporation, hopes to negate its losses suffered so far this year consequent to an upward revision in the prices of petroleum products announced by the Sri Lankan Government.

The government hiked the petrol price by LKR 12, diesel by LKR 8 and kerosene by LKR 10 from Sunday. Lanka IOC does not sell Kerosene.

“We hope to make up for a part of our losses because of the price hike,” Lanka IOC Managing Director K. R. Suresh Kumar told The Hindu. Now, while petrol is ‘right priced' to reflect the current international prices, diesel is heavily subsidised, and a major drag on the finances of Lanka IOC and the Ceylon Petroleum Corporation, the two companies that retail petroleum products in Sri Lanka. Diesel is more than 60 percent cheaper than petrol in Sri Lanka.

Lanka IOC will also have to contend with higher volume of diesel sales, which will offset any margins made in petrol. This is because, before the price hike, Lanka IOC had unilaterally raised diesel prices. It had hence lost a large part of its customer base. Lanka IOC says some of these customers will now come back because both CPC and Lanka IOC now sell diesel at the same price.

CPC is a worse off situation since it also supplies diesel for power generation.

The Sri Lankan Government's huge fuel import bill — it was about $3 billion in 2010, and it has nearly touched that figure in the first nine months of the current year — prompted it to go in for the hike. CPC also has about five times the retail outlets as Lanka IOC.

Mr. Kumar said he hoped to make up for the losses in diesel with higher sales, and profit from bunkering and bitumen businesses. He suggested that if the government looked at the international oil prices every quarter and decided on the quantum of price hike, it would give both the companies some breathing space. Now, there is not enough finances left for modernisation or expansion, he added. (Source: The Hindu)