Some thoughts on the "pricing mechanism" of petrol

The highest courtyard has made an order on 17 December 2008 that the price of petrol be attuned on the foundation of the method as set out in take possession of A, and that the advertising price of petrol be abridged to Rs 100/= per litre with effect from midnight of 17 December 2008.
In this link, the following points are of significance:
1. Impact on income
1.1 The above gauge is predictable to reduce Government profits by Rs. 14 billion during the year 2009, which is senior than the whole cost of the Samurdhi reimbursement
1.2 For the past more than a few decades, the Sri Lankan Government income has been insufficient to meet its spending. so, the Government has had to option to borrowing to meet its total spending. Accordingly, if the taxes on the fuel crop are to be abridged or revised with a view to plummeting the home retail prices, this would decrease government income.
1.3 The above affirmed a reduction in income will then have to be compensated by :-
1.3.1 A corresponding decrease in recurrent or assets expenditure
1.3.2 The burden of additional taxes on sure other items. The burden of taxes on other items to get well the income loss would of course result in increases in the prices of those items, as the income will have to be generated through not direct taxes, in which event the final burden will also have to be approved on to the People; or
1.3.3 The reduction of the subsidies provided to the most susceptible segments of our People; or
1.3.4 The matching increase in borrowing which would both add to price rises, and the debt load of the country, thereby having an unfavorable impact on the on top of two key macro-economic variables of the financial system.
1.4 Needless to say, none of these alternative would help the People of this country.
2. Possible Impact on Powers of Parliament
2.1 The imposition, taking away or change of exercise duty, civilization duty or any other duty which has been accepted by assembly via the financial plan on proposals by the Minister in accuse of the subject of Finance (who is responsible to Parliament for the finances of the country), would be a exit from recognized norms + conventions. The government, which is the Supreme power in the control of Finances cannot, and should not, abrogate such authority.
2.2 Any alter in that state of affairs as a result of a Court Order could chauvinism the power that Parliament exerts over the money.
3. The Court ordered Pricing Scheme being highly Arbitrary
3.1 The essence of the appeal has been that the price of petrol has been fixed by the Government in an random manner. However, Annex A also refers to a change in civilization duty based on a new randomly fixed selling price of Rs 100/=. If so, the new pricing scheme ordered by Court could attract the same fault.
3.2 Further, the items of costs as cautious in the compilation of the new pricing arrangement, appears not to have been factored in.
3.3.1 In fact, the item "Overheads counting profit margin" has been unspecified be a constant figure of Rs. 9/71 per litre. However, LC charges, attention costs, bank charges, etc. could vary materially, based upon the price of the manufactured goods. Hence, such an supposition is not tenable.
3.3.2 In this computation, CPC's "profit margin" has also been randomly limited to a particular figure. However, every business needs incessant new asset. In the same way, CPC needs to :
(a) Maintain its plant and equipment at a high level of competence,
(b) Make considerable new investments in order to get better its service delivery,
(c) Increase its plant capacity at a variety of times,
(d) Improve its sharing network,
(e) Upgrade its security standards,
(f) Strengthen its financing capabilities, etc.
If, so CPC is forced by a exact low profit fixed by an exterior force, it is probable that the CPC will fall short of the severe international principles that it must uphold, and that may quite with no trouble lead to, at some prospect date, for the CPC to face a likely privatization, on the basis that its financial power has dwindled or, that it is cash short of money, or that it is cover behind in growth. Therefore, the burden of a limited random profit edge could significantly affect the survival, continuance and enlargement of the CPC in the medium to longer term.
3.3.3 In the Court heading for computation, the swap rate has also been in use as a constant figure at Rs 110.73 to a US$1.00. Even as of 19/12/08, the exchange rate was approximately Rs 113.50 to a US$1.00. On that basis, a sum of nearly Rs. 3/- more than the figure used in the computation, has been recorded. Using a fixed swap rate is clearly may not be wise in today's worldwide volatile circumstances and needs to be revisited.
4. Basis for Reduction misguided
4.1 The main proposal upon which the petrol price decrease has been based upon is contained in the judgement of 15 December 2008. In such judgement, the Supreme Court has stated as follows: "if the 'Hedging agreements' had been in force, the cost per tub of petrol would have been about US$89. In the situation, there is a considerable reduction in the cost per barrel of petrol which resulted from the temporary order made by thus Court pursuant to the supposed infringement rights of the petitioners. Court is of the view that it would be arbitrary and unreasonable to impose heavy Government and fiscal levies in effect absorbing the gain made from the order complete by this Court in staying the operation of the 'Hedging agreements'"
4.2 This statement suggests that the Court assumes that the sum that was the subject matter of the petition is a "gain" for the CPC, and that therefore it could be passed through by the CPC to the People. However, such a dependent payment from the CPC to five banks was a matter in argument. Further, based upon the facts currently being revealed, there is sufficient reason for the CPC to dispute and repudiate such a payment, on the basis that the banks were amiss in "selling" them the copied products in question.
If so, the CPC would not be grateful to create any expenditure on the supposed oil hedging dealings. Hence, there would have been little danger of the amounts claimed by the banks from the CPC being, in fact, paid without demur. In such circumstances, the supposition that the price per barrel of oil would be US$89, and that due to the Court Order, it would now not be payable and hence, a "distribution" of such a apparent benefit to the populace is in not of necessity a valid proposal.
Further, the hedging agreements that are in argument are based on basic oil, diesel and petrol. By attempting to assign a apparent gain as a result of the suspension of these agreements to reduce to price of petrol is may not be a viable proposal.
5. Impact on Foreign Exchange
5.1 On a simple financial analysis, the decrease in taxes on petrol will add to the insist for petrol as well as the demand for motor vehicles. All these, in turn will considerably increase the outflow of foreign exchange from the country, which is toddy gathered at great give up and effort. The current international Credit crisis and the worldwide economic down twist have also substantially abridged the foreign money liquidity in the worldwide market.
5.2 In such a state of affairs, the reduction of the petrol price will inflict a huge burden on the country which is opposite the confront of using its limited foreign treasury in a cautious manner to balance the many macro-economic factors of the economy.
5.3 The mathematical computation which has been relied upon by Court to create this Order does not come into view to factor in this very significant feature and that fact undermines the foundation of this "Price formula".
6. Principle of Taxation of Petroleum Products
6.1 The fundamental principle in the present tax structure on petroleum crop is that there is a higher tax on petrol, since petrol is used mostly for private transportation. In difference, diesel and kerosene are used mostly for public and goods transportation, industries and for illumination and cooking. Therefore, moderately lower taxes are levied on diesel and kerosene so that such benefit would be to the general public, particularly the low profits groups, and those who are using diesel and kerosene for financial action.

Set up Regional Food Security Funds - President Rajapaksa suggests at FAO confab

President Mahinda Rajapaksa, addressing the FAO Conference on food security in Rome today, gave an overview of the situation in Sri Lanka with respect to the challenges of climate change and bioenergy. He also proposed the setting up of Regional Food Security Funds so that the financial and technological resources within a given region can be better employed to expand food production, improve storage and distribution.


The full text of President Rajapaka's speech is given below.
Mr. Chairman

President of the Republic of Italy,

Secretary General of the United Nations,

Director General of FAO,

Excellencies,

Distinguished Participants,

Ladies and Gentlemen,

I greatly value this opportunity to present Sri Lanka's views on the crisis in global food supply that has taken center stage in world affairs. It is a crisis with the potential to have a crippling effect on the smaller, less developed countries withrestrictions on the availability of arable land and financial resources. A crisis in food becomes all the more serious as it impacts most severely on the most vulnerable sections of a community, - namely, those living in poverty who constitute around one billion of the world's population. As a global community we need to act fast and take short term emergency measures to ensure that the poorest and most vulnerable sections of our people do not go hungry.

It is regretted that warnings of this crisis, although seen, were largely ignored, until it assumed today's magnitude. It is a crisis that has come from the growing demand for fuel, the failure to act in time on climate change, the ravages of terrorism, and problems of distribution.

Sri Lanka, like many other developing countries, is affected by all of these factors - namely - the total dependence on imported fuel; success in agriculture being dependent on changing weather patterns; and problems of storage and distribution. We are also faced with the fourth factor where food production is made difficult or even hazardous due to the threat of terrorism. Much arable land has been neglected due to land mines being laid by terrorists for over two decades.

While a combination of all these factors, no doubt, has resulted in the present crisis, there is also another set of factors, - socio - political in nature, - to which I would like to direct our attention. Let me explain, Mr. Chairman, by drawing on the experience of my own country, which is not very different from that of many other developing countries of the world.

Before the economy of our country was opened to the play of global market forces, the focus of social and economic development was the rural sector. The granaries of the nation which produced the food for our people and consisting of thousands of villages where 77% of the people live today, were then the main focus of economic development and concern. Rural incomes, rural well being, rural infrastructure, rural transport, rural health, rural education and other rural services constituted the main goals and objectives of social development. Development was focused on enhancing the productivity, well being and dignity of the peasant and small farmer who produced the food for our people.

With advent of the open economy, the focus of development activity shifted - in stages no doubt - from the village to the town. It shifted from that larger part of the country where rural people toiled to produce food for us all, to the urban centres of commerce and industry where goods and services are produced largely for export to high income countries.

The international economic pressures of that time coupled with some domestic political compulsions made us, as a country, shift our focus of development and concern, away from the rural economy and rural society, away from agriculture and food production to manufacture, commerce and services, away from a concern for the dignity and well being of those who produce the food for our people to a concern for those who came to the cities and towns to be engaged in non - farm employment.

We opened our doors so wide to the global market forces, that while we reaped several of the benefits of globalization, we failed at the same time to protect several of our national interests, - in particular, those relating to our food security - from the negative impact of the global market. The earlier development goal of self reliance in food which we had almost reached, and in some years even exceeded, was severely weakened as my country gradually opened even the production and supply of our food requirements to the free play of global and domestic market forces.

The country progressively dismantled its buffer stocks of rice and wheat flour - a then abiding feature of our food security - which cushioned the food supply from the shocks and uncertainties of crop failures on the one side and price fluctuations on the other. As the State for all practical purposes started reneging its responsibility for providing food to the people at an affordable price, the supply and price of food became more or less a market responsibility.

I will not elaborate too much on the reasons for this crisis. We all know that global food stocks have reached an all time low and prices have escalated to unexpected levels. Sadly the world is conditioned by forces which are beyond the control of poor countries. From a situation of an excess of food supplies, only a few years ago, we have entered an era of shortages.

We needed a change in our policy on development. We have therefore launched an integrated national drive called 'Api Vavamu Rata Nagamu' meaning, 'Grow more food towards prosperity', through which all arable lands in the country are being brought under cultivation. At the same time, during the last two years, we have provided a substantial fertilizer subsidy to rice farmers, at a huge cost to the government to increase farm productivity. This is continuing despite ever increasing global fertilizer prices and I must say that this bold initiative has paid significant dividends in terms of enhanced production.

We are giving lands to farmers who do not have lands for cultivation. We have already initiated a number of multi - purpose irrigation schemes to transform therwise dry lands into fertile agricultural settlements. Seed production

programmes in the country have been strengthened to ensure that good quality seeds are available to farmers at cheaper prices, as well as to increase overall seed production in the country. We have also strengthened our market network for agricultural produce by re-establishing the Paddy Marketing Board to purchase paddy from farmers at a guaranteed price.

While focusing more specifically on agriculture and food production, we are also implementing a Village Upliftment Programme - 'Gama Neguma'. Through this programme we hope to see all villages of our country emerge as micro centres of growth on modern lines while retaining the impressive strengths and features of rural life. My government seeks to ensure that our country's villages which produce food for our people will have electricity, a common telecommunication system, drinking water, irrigation water for the rice fields, access roads, infrastructure,

schools with adequate resources, electronic knowledge centres known as 'Nena Salas' or e-libraries, health centres, market centres, paddy stores, fertilizer stores, rice mills, pre-schools, play grounds, a village forest, and other amenities and factories to generate off farm and non farm employment.

We will continue to give the highest priority to increased agriculture, dairy farming and fisheries to face up to the challenge of ensuring adequate food for our people. Yet, being an island nation, we are faced with the threats to food security from high oil prices and the changing patterns of cultivation abroad - with bio-fuels made more attractive than food crops.

In the prevailing competition between food and fuel, Sri Lanka is firm in the decision that no land that can be used for food will be used for bio-fuel whatever the commercial attraction may be. It is our belief that food for the people should have the highest priority, and not the running of gas-guzzling vehicles.

At national level therefore, even before the issue of global food security had reached a crisis level, my government had already launched an integrated drive towards ensuring our country's food security. But while we act at national level, we need to recognize the fact that in the highly interconnected world of today the causes of the world's food crisis have to be confronted at regional and global levels as well.

While focusing on specific issues relating to the food crisis, we shall welcome the FAO to monitor - systematically and continuously - the production of food in the world. By doing so, FAO will be able to forecast shortfalls and price fluctuations well in advance so that countries and regions can act well in time to mitigate their adverse effects on the people, and a crisis is prevented from suddenly staring them in the face.

It is our considered position that a regional approach to food security within a global framework is essential, since food habits and production are region specific in nature. I would like to request the FAO to initiate a global mechanism for developing regional buffer stocks of staple food. We, in the SAARC region are home to nearly one fifth of the world population. A regional buffer stock of staple food will take pressure off governments in the SAARC enabling them to concentrate on other issues such as reducing poverty and enhancing quality of life of their peoples.

A regional buffer stock would also cushion individual countries against the fluctuations in food production, caused by the uncertainties of the weather made worse by recent climatic changes. And for regions that may lack adequate financial capacity for such a project, international support will be required. These buffer stocks could be maintained nationally or by regional agencies but be funded internationally. We can explore different options, including through instruments generated by international financial institutions, for funding such mechanisms.

In the midst of all these, I believe there are some countries in the world which have been able to build a surplus of staple foods. These countries are affluent and therefore should move towards helping build the regional buffer stocks by contributing through supply at low cost. That will be a good start and also will help to build a meaningful global cooperation towards reducing vulnerability of many small developing countries.

Creating a regional buffer stock would be meaningful only if adequate food stocks could be moved to needy countries in a short time. In the past we have witnessed instances where adequate shipping space or other means of transport had been hard to come by. Low freight, minimal handling charges and of course the waiving off of country specific customs and other duties when such emergency food stocks are being exported is crucially important if we are to make this suggestion workable.

I recognise that buffer stocks became an unpopular concept since New International Economic Order of the seventies. But the changed global circumstances, in particular the skeletal fingers of hunger, require changed approaches for the sake of humanity.

As much as we are concerned about food security, attention must also be given towards enhancing productivity in the entire agriculture, fisheries and livestock sector. One impediment experienced by the farmers in my country is the severe shortage of plant seed and other planting material. As this is common to many other developing countries, it must be remedied fast with the help of the international organizations. Establishment of seed banks with state of the art technology is one solution to this problem. In the fisheries sector, there is a serious concern because our ocean's harvest is being poached by foreign fishing vessels thereby reducing the supply for our people.

Most important of all, I strongly commend to the world leaders gathered here to seriously consider the setting up of a Global Food Crisis Fund that will have contributions from all countries and from large business organizations that transcend geographical boundaries, and from financial institutions and philanthropists of the world, among others. The mechanics of such a fund will have to be worked out in keeping with the goal of assisting countries faced with serious dangers to food security and also in funding initiatives for greater food production.

We are also of the view that in addition to such a Global Food Crisis Fund or working together with it, there should be Regional Food Security Funds drawing the financial and technology resources within a region to expand food production, improve storage and distribution and also come to the assistance of regional neighbours that may need help in the event of a food crisis as we see emerging today.

In conclusion, let me thank the UN Secretary General and the FAO for bringing this conference together and affording us an opportunity to share our views and experiences across the globe. My country will support you to develop a global action plan to face the crisis in the short run while at the same time to prevent a food crisis of this nature from recurring in the future.

May the Triple Gem Bless You All !

Courtesy: Government Information Department

The Secretariat for Coordinating the Peace Process welcomes the conclusion of the Eastern Provincial Election, and the possibility now of establishing

President Mahinda Rajapaksa is due to address the Oxford Union today(13), on the invitation of the Oxford Union and the Sri Lanka Society of Oxford University.

The topic of his address will be 'Strategy towards empowering the rural economy in Sri Lanka'.

President Rajapaksa will be the first Sri Lankan Head of State and Sri Lankan statesman who has not previously held office in the Oxford Union to address it as a guest speaker. The last distinguished Sri Lankan to address the Union was former Foreign Minister, Lakshman Kadirgamar.

Courtesy - Government Information Department