Fuel Price Stabilisation Fund made redundant as govt. ends collecting incomes due to rising oil prices

The much hyped Fuel Price Stabilisation Fund (FPSF) set up to do exactly what its title suggests, that is to stabilise fuel prices at the pump against the volatile global oil prices and to safeguard the consumer, ended up with a Rs.27 billion negative balance in the year ended in 2020, just about a month before the fund ended collecting incomes due to rising global oil prices.

While the fund was initially set up in March 23, 2020 with an initial capital of Rs.50 billion raised via issuing treasury bills, the subsequent building up of the fund was made via collecting a surcharge imposed on the custom duty charged on petrol and diesel imports from the same month last year. 

During 2020, the FPSF was also partly utilised to settle Ceylon Electricity Board dues amounting to Rs.48 billion to the Ceylon Petroleum Corporation. 

“The government imposed a surcharge on refined petroleum products when global petroleum prices decreased to around US$ 25/bbl, with a view to maintaining a FPSF so as to support the Ceylon Petroleum Corporation in particular when global prices move upwards without passing on the increase to retail consumers,” the Finance Ministry said.

While the surcharge was collected into the FPSF through January 2021 that wasn’t possible from February onwards due to constantly rising global oil prices, the government therefore disbanded collecting the surcharge via a gazette issued on February 1, 2021. 

The crude price at the Brent plunged to its historical lowest of US$ 19.33 a barrel on April 17, 2020 before rising by 180.9 percent to US$ 54.30 a barrel by the dawn of 2021 with the recovery of global economies from the worst of the pandemic. 

Prices have risen by a further 32.8 percent year-to-date to US$ 72.62 due to continuous recovery in global demand from the advanced economies as their post-pandemic economic growth is outperforming the developing world by a large margin. 

The continuous rise in global oil prices and discontinuation of the surcharge collection into the fund appears to have rendered the FPSF redundant as it may have exhausted its remaining funds in stabilising the fuel prices thus far.

The fund had a negative balance of Rs.26.7 billion on the liability side of the Finance Ministry’s balance sheet for the year ended in 31 December 2020, perhaps indicating what was remaining in the fund by the end of the year.