Now maybe it's just me, but it seems to me that the Sri Lankan Government's oil policy is a bit retarded. Let's summarize,
- First, theres' a tax Petrol (VAT, excise duties, so on)
Some reports puts the proportion of the tax at about 37% of the total selling price which now stands at Rs.157 at state-owned CPC pumps.
- Then the earnings from petrol, subsidize diesel.
There is no real reason why diesel should cost less, but it does here in Sri Lanka. In some countries in fact, diesel is more expensive. Ironically, the richer sections in Sri Lanka have the diesel vehicles (thanks to a higher import duty on diesel vehicles) while middle and lower income earners who use motorcycles, three-wheelers, small vehicles etc are using petrol therefore subsidizing the rich kids. Some pro-poor policy.
- Finally, the Ceylon Petroleum Corporation (CPC) makes a multi-billion rupee loss.
The burden of which must be financed by the taxpayer -- which is basically everyone who buys anything. From January this year, the CPC has made a loss of about Rs.7 billion (700 Million US$)
So the policy is essentially this: you tax on one hand, and subsidize on the other. Taxpayer pays on both counts. That strikes to me as being rather retarded (or ingenious, depends on how you look at it).
Which other company you know does this kind of thing? I mean think, really. Can you even name a
sillara mudalali (small shop owner) who'd practice this insane business model? If you could, then that person is probably out of business by now. That's a fundamental difference with governments and private initiatives.
In private enterprise, failure would mean closure. No more resources are spent on that failed project. In governments, failure usually means even
more money and
even more resources are spent on that project, compounding the problem.
This is especially apparent when CPC's only rival in the business, Lanka IOC
managed to make a profit, without any freebies from the taxpayer. The reason for this has to do with incentives, while Lanka IOC faces market incentives, CPC doesn't. It faces political incentives, which are nearly always economically disasterous. LIOC's incentives tells them to diversify business, make productivity enhancing investments, etc. Whereas CPC's incentives instructs them to hold down prices, hire unnecessary labor, etc resulting massive losses.
To cut to the chase, yes,
CPC should be privatized. There's no doubt about it. Why on earth would you, the beggars on the street, taxi drivers or anyone for that matter finance state blunders.
If you are waiting for the bright sunny day, where we'll have good governance and efficient state enterprises living the democratic socialist dream, sorry
machang it ain't coming. It's time we realize that, dismantle the leftover socialism and take advantage of market efficiencies.
