Explainer: Understanding the Fuel Distribution Controversy in Sri Lanka

COLOMBO (News 1st); Amid rising concerns of a potential fuel shortage reminiscent of the 2022 crisis during the Gotabaya Rajapaksa administration, the Sri Lankan government has assured the public that there is no possibility of a fuel shortage in the country.

The root cause of the current issue, which led to people rushing to filling stations across the country overnight, appears to be the commission rates provided to fuel distributors.

What is the Issue?

The controversy began when the government decided to abolish the 3% commission currently given to fuel distributors and implement a new payment formula starting 1st of March.

The National Audit Office and the judiciary have both confirmed that the additional 3% commission previously received by fuel distributors was illegal. This commission, amounting to over 35 billion rupees annually, was being distributed among fewer than a thousand fuel distributors instead of benefiting the treasury.

This situation arose from a circular issued by the government on March 10, 2022, which mandated an additional 3% commission for fuel distributors to cover the increased fuel prices. According to the agreement, if the diesel price exceeded 121 rupees, the corresponding 3% commission had to be paid.

However, it later became evident that this system was unfairly distributing a significant amount of public funds among a small group of distributors. Consequently, efforts were made to change this unjust 3% commission, leading to legal challenges from the distributors.

Despite seeking relief from various courts, including the District Court, the Court of Appeal, and the Supreme Court, all these courts have now rejected the distributors' requests for interim injunctions.

Government's Stance:

The Ceylon Petroleum Corporation (CPC) has stated that the latest bold and correct decision was made to end the unfair practice of diverting public funds to a small group of businessmen.

The CPC also emphasized that the 230+ fuel stations owned by the corporation are public assets and should not be used to exploit the public.

Fuel Distributors' Perspective:

D.V. Shantha Silva, a board member of the Petroleum Distributors' Association, stated, "The 3% commission is legally agreed upon. Several cases are currently pending in court. The court has instructed both parties to discuss and find a solution. However, the government unilaterally issued a circular abolishing the 3% commission. We maintain that this circular is illegal and that the commission we receive is lawful."

CPC's Assurance:

The CPC Chairman, D.A. Rajakaruna, assured that there is no fuel shortage in the country and that fuel distribution is taking place as usual.

"They claim this (commission) is legal, but we say it is not. The court's decision on August 30, 2024, stated that the 3% commission was unfairly taking public funds and distributing them among 1,400 distributors, violating articles 12 and 27 of the Constitution. The court ordered the immediate removal of the interim injunction. If this decision is not implemented, who will be responsible? I will be."

Rajakaruna explained that the commission should be relative to operational costs, such as electricity bills, water bills, salaries, and maintenance. He emphasized the need for a transparent formula based on actual costs to ensure no issues arise.

Despite the strike by distributors, fuel distribution continued as usual at the Kolonnawa and Matara storage terminals, which are owned by the CPC. Rajakaruna stated, "We have received orders for 1,696 loads from CPC, 471 from IOC, 391 from Sinopec, and 366 from RM Parks. Around 140 loads have arrived at Kolonnawa as usual. There is no reason for the public to panic."

Minister of Labour and Deputy Minister of Economic Development, Prof. Anil Jayantha, clarified that the new scheme has not reduced the profits for fuel distributors and shed owners.

Leader of the House, Minister Bimal Ratnayake, addressed Parliament on the current status of fuel distribution nationwide.

He explained that the government incurs costs related to fuel transportation, refining, and distribution, and that commissions are allocated to fuel distributors as part of the system.

Ratnayake emphasized that the government will adhere strictly to the court’s ruling on this issue and reassured the public that there is no fuel shortage in the country.