2007 - Ceylon Petroleum Corporation

24
Pricing Policy
The Government withdrew subsidies
on domestic petroleum processing on
1st July 2006, following which CPC was
obliged to set domestic fuel prices with the
concurrence of the Ministry of Petroleum
and Petroleum Resources Development.
For political reasons, it is difficult
for CPC, a State-owned entity, to
cover the ever increasing cost of
production and distribution by retail
sales. In cognisance of this, CPC has
maintained stable domestic price levels,
even during the second half of 2007,
when oil experienced its highest-ever
international price surge (from 29th
July 2007 to 13th January 2008). In thus
taking CPC the brunt of these increases,
shielding consumers from them, the
Corporation has been forced to absorb
considerable financial loss.
CPC’s pricing policy is to achieve
break-even profitability while shielding
consumers to the best extent possible.
Liquidity
Working-capital management plays a
vital role in the business of refining and
marketing petroleum products.
CPC’s stock position and receivables
increased by Rs. 26 Bn, financed by
increased supplier’s credit and the
renegotiation of importing loans. CPC
understands that the country cannot
afford to run out of petroleum product
stocks. The Corporation recognises
and accepts its basic responsibility to
guarantee the energy security of the
country. However, Government debts
to the Corporation have now risen to
a level that seriously threatens CPC’s
liquidity position and thus its ability to
maintain sufficient product stocks to
maintain energy security.
Institution Outstanding as at Outstanding as at
31.12.2007 31.12.2006
Rs. Bn
Rs. Bn
Ceylon Electricity Board 20.0 11.6
Sri Lanka Railways 1.8 0.9
Armed Forces 4.0 2.4
Total 25.8 14.9
ANNUAL REPORT 2007 | CEYLON PETROLEUM CORPORATION