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Subsidy row: IOC to consider SL offer

IOC will consider a compromise formula suggested by SL Govt to settle the row, reports PK Balachandran.

india Updated: Jun 11, 2006 19:12 IST

The board of the Indian Oil Corporation (IOC) will consider in a few days, a compromise formula suggested by the Sri Lankan government to settle the row over subsidy between Lanka Indian Oil Corporation (LIOC) and the government of Sri Lanka.

Informed sources told Hindustan Times that the Sri Lankan government had offered to pay $52 million of the $70 million, which it owed to the LIOC.

The government said that out of the $52 million, it would pay $10 million in cash immediately on signing an agreement, and the rest would be given in the form of short term cashable bonds.

When the LIOC set up shop in Sri Lanka, the island's government had offered a subsidy to make the company sell fuel at an uneconomical administered price.

But the subsidy was not paid over one issue or the other. And in the past two years, it had accumulated to a whopping $70 million (nearly touching the total investment of $75 million).

On Thursday, the long standing row resulted in the 160 fuel stations owned by the LIOC stopping the sale of petrol. The company said that it had no money to buy stocks.

The LIOC told the Sri Lankan government that it would be able to pull through if it was paid $10 million immediately. But the government said that it could not release the money till an agreement had been signed.

But this would take time, as the IOC's board would have to meet and consider the proposal first. If the board were to agree, an agreement could be signed on June 19, sources said.

And once the money was released, oil could be brought from India within 24 hours.

The entire process may take about 10 days. Till then, Sri Lanka will face a petrol shortage because the LIOC owns roughly about a third of the petrol pumps in the island.

The rest are owned by the state-owned CPC.

SL suggests dual pricing

Quoting the Sri Lankan Minister of Petroleum AHM Fowzie, The Sunday Times said that the government had decided to allow the LIOC to fix its own selling price in lieu of subsidy.

The government's plea is that it has no other option because it has no money to pay the whopping subsidy $70 million.

But the LIOC may not able to agree to the dual pricing policy, with the state-owned CPC selling at a lower price.

On Saturday, the government raised the price of 90 octane petrol by SLRs 5.

But the LIOC would have been happier if the hike was by SLRs 10, as that would have helped it break even.

Sources said that because a dual pricing would be injurious to the LIOC, the IOC board might okay a subsidy of $52 million, with $10 million being paid immediately on the signing of an agreement.

Unions oppose freedom to fix price

Meanwhile, unions of the CPC have threatened to go on strike if the LIOC was given the freedom to fix the price of petrol and diesel. That would be an anti-people measure, the unions said, according to The Sunday Times.

The CPC unions have the support of the Ceylon Electricity Board unions also.

And if the CPC and CEB do go on strike, the Sri Lankan economy will be very badly affected and the people will have a very hard time indeed.