Sri Lanka Indian Oil running out of cash: official

The Sri Lanka unit of the Indian Oil Corporation is running out of cash and may not be able to import the next consignment of oil as crude prices rise and taxes bite into revenue, an official said.

"My next import is coming in end July," Lanka IOC managing director Suresh Kumar said.

"How am I supposed to open the letter of credit if I do not have money? I want to import but I simply do not have the money."

Lanka OIC pumps have run dry earlier when it ran out of cash, but Kumar said he wanted to avoid a repeat of the incident.

Kumar said Lanka IOC has lost money since March as oil prices rose and the government taxed petroleum products heavily.

Lanka IOC faces a higher tax burden than state-run Ceylon Petroleum Corporation due to the way taxes are charged on petroleum, which officials have justified on the basis of its unwillingness to sell kerosene, which is priced below cost.

On July 02, Sri Lanka raised the price of retail petrol by 10 rupees to 130 rupees and diesel by 3 rupees to 73.

Kumar says Lanka IOC is losing about 14 rupees on petrol and 20 rupees on diesel even now.

Based on yesterday's Singapore wholesale refined product prices released by the Central Bank and the Sri Lanka rupee at 115.10 to the US dollar, petrol was only 52.50 rupees a litre while diesel was 52.60 rupees a litres.

On Friday Sri Lanka's retail petrol was 247 percent above the Singapore benchmark, and diesel 138 percent.

The government is taxing petrol by about 75 rupees a litre and diesel by about 27 rupees a litre, according to industry officials.

Sri Lanka does not have an automatic price formula but prices are changed largely on the whims of politicians.

Diesel which is used by business and the super rich sections of society who can afford diesel luxury sports utility vehicles and cars or have access to duty free imports permits, is kept low, due a belief that inflation is a diesel related phenomenon.

In the past when the government subsidized petroleum and made up for revenue losses with printed money from the Central Bank, inflation has risen steeply.