Fuel Retail Distribution and the Questions Raised by Fuel Distributors in Sri Lanka
Seven Questions for
Sri Lanka's Energy Market — From Short-Term Price Stability to Long-Term Energy
Security
By our Energy
Correspondent
Since the start of
2026, Sri Lanka has once again found itself squeezed by forces beyond its
control. Continuing tensions in the Middle East and rising international crude
and refined product prices have piled fresh pressure on the country's energy
prices and supplies.
The government's
response has been familiar: fiscal subsidies, controls on terminal prices, and
a determination to shield households from the full force of global markets. But
the consequences of that response are now becoming visible in the fuel retail
distribution market — and the distributors themselves are asking hard
questions.
Private and
international oil companies, facing import costs well above the retail price,
have steadily reduced their market supplies. The result: CPC's diesel market
share has climbed from around 58 per cent to 74 per cent by September.
On October 2,
President Anura Kumara Dissanayake, speaking at the launch ceremony for CPC and
CPSTL projects, said the government wished to maintain a "strong state
share" in the energy market and to re-examine the effects of the previous
policy of introducing private companies to boost competition. He noted that CPC
made a profit of approximately 36 billion rupees last year and has already
realised around 28 billion rupees this year, while CPSTL earned approximately
3.5 billion rupees last year.
From the standpoint
of national energy security and consumer protection, that policy orientation
has a real logic. But widen the lens from the retail pump to import capacity,
fiscal cost, foreign exchange risk, state asset returns and supply assurance in
extreme conditions — and the questions multiply.
1. If international
oil companies no longer absorb losses, can CPC stay profitable while expanding
supply?
The rise in CPC's
market share has a blunt commercial background. In late September, the CPC
Chairman disclosed that private companies had reported per-litre diesel losses
of approximately 192 rupees for Sinopec, 173 rupees for RM Parks and 136 rupees
for LIOC.
Private companies,
he made clear, are commercial entities. They cannot lose money indefinitely.
Some have therefore cut their market supplies.
In other words, the
shift from 58 per cent to 74 per cent is at least partly not the result of
consumers freely choosing CPC in open competition, but of private firms
withdrawing from a loss-making market.
What is less often
said is that CPC itself is selling diesel at a loss. As of October 1, the
Chairman put the comprehensive cost of diesel at about 528 rupees per litre
against a retail price of 392 rupees — a gap of 136 rupees. After a government
subsidy of about 70 rupees, CPC still absorbs roughly 66 rupees per litre.
Petrol, too, carries a gap of about 52 rupees per litre.
CPC can carry these
losses only because aviation fuel, bunker fuel and the refinery generate
profits that balance the books internally.
The real stress
test, then, is this: if private companies cut imports further and CPC must lift
its diesel share from 74 per cent to 90 per cent or higher — while still losing
money on every litre — can its profitability, cash flow and working capital
hold?
Cross-subsidies can
only stretch so far. As supply responsibility concentrates in CPC, the losses
scale with it.
2. Are
international oil companies taking the state's market — or paying for its
infrastructure?
The debate around
private oil companies has focused on one number: CPC's falling market share.
Less noticed is that these companies still rely heavily on state-owned storage and logistics. In its 2024 annual report, CPSTL described itself as a common-user facility for the national petroleum storage and distribution system. That year it handled about 4.4 million kilolitres — CPC 77 per cent, Sinopec about 10 per cent, LIOC about 7 per cent, RM Parks about 5 per cent and others about 1 per cent.
Non-CPC operators,
in other words, already account for roughly 23 per cent of CPSTL's throughput.
CPSTL's operating revenue that year was about 18.9 billion rupees.
A litre imported
and sold by an international oil company does not mean all its economic benefit
leaves the state system. A substantial share returns through storage fees,
throughput fees, facility charges and taxes.
So the ledger
should record not only how much less CPC sold, but also how much third-party
revenue CPSTL gained, how much state storage utilisation rose and how much
import and financing pressure the state avoided. On that reading, CPC, CPSTL
and the international companies are not necessarily playing a zero-sum game.
3. If the international
companies import less, can the refinery fill the gap?
The answer is
unambiguous: no.
CPC's own figures
show the Sapugaskanda refinery has a design capacity of about 50,000 barrels
per day — enough to cover only 30 to 35 per cent of CPC's sales. Recent
documents on the refinery upgrade project are blunter still: Sapugaskanda meets
roughly 30 per cent of Sri Lanka's petroleum product demand, leaving about 70
per cent to imports. The country spends about US$4.5 billion a year on
petroleum imports, of which CPC accounts for some US$2.5 billion.
Whether CPC's share
is 74 per cent, 80 per cent or 100 per cent, Sri Lanka will not escape its
dependence on imported refined products. Re-concentrating the market in CPC
merely shifts the burden of international procurement, dollar payments,
shipping, letters of credit, inventories, working capital and price risk back
onto CPC and the domestic financial system.
Market control and
supply capacity are not the same thing. A bigger CPC share strengthens the
government's hand in regulating the market. It does not remove the dependence
on international markets and dollar finance.
4. Do CPC's healthy
profits mean the system is resilient?
The President has
repeatedly cited CPC's profits, and they reflect a genuine improvement in the
company's finances. But the true test of energy security is not the income
statement in a good year. It is whether, when oil prices are high, dollars are
scarce and national credit is weak, the company can still buy enough fuel.
Sri Lanka knows
this intimately. The CPC Chairman has disclosed that, as oil prices rose, the
country's monthly fuel import bill jumped from under US$200 million to about
US$520 million.
Higher market
share, in other words, brings not just more sales but more dollar demand, more
inventory financing and a bigger import exposure.
Corporate profitability
is not the same as foreign exchange resilience. A company can be profitable on
paper and still be unable to import because it cannot obtain dollars, because
its banks cannot open letters of credit, or because suppliers shorten their
terms. That was among the hardest lessons of 2022.
If foreign exchange
pressure returns, which system is more resilient: one heavily concentrated in
CPC, or one shared among CPC, LIOC, Sinopec and RM Parks? The answer is not
difficult.
More state
responsibility does not automatically mean more energy security.
5. Is the real
value of the international companies competition — or crisis insurance?
When Sri Lanka
opened its petroleum market further in 2023, the argument centred on
competition and efficiency. The experience of 2022 suggests a second and
perhaps more important value: supply capacity that does not depend entirely on
Sri Lanka's national balance sheet.
In energy security,
this is called strategic redundancy. A safe system rarely has only one supply
route. For an island where about 70 per cent of petroleum products are
imported, private and international companies mean multiple procurement
channels, multiple credit entities, multiple funding sources, multiple supply
networks and multiple commercial inventory pools.
For companies
backed by large parent groups, import capacity does not rest solely on Sri
Lankan bank credit or foreign reserves. That value becomes apparent precisely
when the country's foreign exchange and credit are under strain.
Their commercial
stocks are not only corporate inventories. They are part of the system-wide buffer
available to the entire country.
If prolonged
negative margins force these companies to import less, hold less stock, invest
less and shrink their networks, Sri Lanka loses more than competition. It loses
a layer of external buffer. That may be the most important long-term
consideration in the current policy debate.
6. When the IMF
constraints ease, will subsidies become transparent — or will state firms carry
the cost again?
This is the longest
of the questions. The IMF programme has consistently insisted that energy
prices recover costs, that subsidies sit in the budget and that state-owned
enterprises not become vehicles for hidden fiscal costs. In September, the Fund
again listed maintaining cost recovery as vital to reducing state enterprise
fiscal risk.
Reality is already
diverging. Diesel costs about 528 rupees a litre. The consumer pays 392. The
Treasury bears about 70. CPC absorbs another 66. Part of the social policy cost
is therefore not in the budget at all, but buried in CPC's internal
cross-subsidies.
In the short run,
that avoids a sharp rise at the pump. In the long run, it poses an
institutional question: is CPC a commercial energy company, or an off-budget
instrument of social policy?
If policy requires
CPC to lose money, the transparent route is to cost it explicitly and
compensate it from the Treasury. Otherwise, profitability, efficiency and
policy obligation remain entangled indefinitely.
Government figures
have indicated that after the current EFF arrangement ends, a similar successor
may not be sought. The intensity of future external discipline is uncertain.
The question to
study now is whether, as external constraints weaken, Sri Lanka can build its
own stable and transparent system: a published price formula, social subsidies
in the budget, CPC's policy tasks costed separately, and private companies
competing under uniform rules. If so, a strong state energy presence and a
competitive market can coexist. If not — if cross-subsidy, administrative
pricing and differentiated constraints deepen — private operators will retreat
further and the market will drift back onto the national balance sheet.
7. Is shielding
consumers from world prices reasonable — and for how long?
Faced with rapidly
rising oil prices, the government has used subsidies, limited price adjustments
and internal absorption by CPC to prevent the full cost reaching households at
once.
In the short term,
there is economic sense in this. Diesel prices feed through public transport,
freight, agriculture, fisheries, industry and distribution into the entire
economy. Passing on the full cost in one step risks a second round of
inflation.
The question is not
whether consumers should be protected, but who pays, for how long, and whether
the price signal survives.
World markets remain
volatile. The Middle East, restricted Russian product supply and low Asian
diesel inventories continue to support prices. A stable downward cycle cannot
yet be confirmed. Current prices do contain a geopolitical risk premium — but
building subsidy policy on the assumption that oil will soon fall is itself a
gamble.
Subsidies should
buy time to adjust, not bet on falling prices. Temporary relief is a bridge,
not a destination. As a three-month subsidy becomes six months and then longer,
fiscal costs accumulate and the price signal weakens further.
A better path is to
move from universal commodity subsidies to targeted social support: let fuel
prices reflect true costs, and support low-income households, public transport,
agriculture and fisheries through quotas or dedicated payments. That separates
two problems:
·
the true cost of energy, reflected in market prices; and
·
household affordability, addressed through fiscal and social policy.
Any price
concession the government requires should be borne transparently by the budget,
not absorbed indefinitely by CPC or private oil companies through losses and
cross-subsidies.
The rational policy
is therefore neither immediate full liberalisation nor a long price freeze, but
a sequence: gradual adjustment, temporary fiscal buffer, targeted support and a
clear exit mechanism. What the government must protect is people's basic living
standards and the functioning of the economy — not a fixed low price.
The question is not
CPC or the international companies — it is who makes the system resilient
The energy crisis
has posed Sri Lanka a question deeper than the price of diesel. What kind of
energy security system should a small, open economy, heavily dependent on
imported refined products, build?
CPC has
irreplaceable strategic value. It carries refining, national supply, aviation
fuel, infrastructure and emergency response. A capable, profitable CPC with
strategic reserves is a foundation of energy security.
But it does not
follow that a higher CPC share means higher national security. The
international companies perform functions that do not appear in CPC's accounts:
international procurement, dollar financing, commercial inventories, global
supply chains and backup supply in a crisis. CPSTL, by opening state storage
and logistics to all participants, converts private activity into national
infrastructure revenue.
The more resilient
market is not one in which CPC defeats the private companies, nor one in which
the private companies replace CPC. It is a structure in which:
·
the state holds a strong CPC as the foundation of energy security;
·
CPSTL serves all participants as a public infrastructure platform;
·
international and private companies supply capital, inventory and global
supply chains;
·
all companies compete under transparent, uniform cost and price rules;
and
·
consumers are protected through fiscal and targeted social policy.
In normal times,
that system delivers competitive efficiency. In a crisis, it delivers one more
supply channel, one more financing entity and one more pool of commercial stock
— one more layer of national energy security.
The real question is not "state or
market." It is whether, when the next foreign exchange, oil price or
supply chain crisis arrives, Sri Lanka wants one entity to carry all the risk —
or several independent systems that can also support one another. The answer
may matter far more than whether CPC's share today is 58 per cent, 74 per cent
or higher.