Sri Lanka’s fuel procurement system is facing mounting scrutiny as a combination of flawed tender processes and heavy reliance on spot purchasing drives up costs, exposing the country to potential corruption and financial losses. What was once a structured import mechanism has increasingly become reactive, with authorities scrambling to secure supplies at elevated global prices often at a premium.
Industry analysts point out that the shift away from long-term contracts toward spot purchases has significantly weakened price discipline. Spot buying, while useful during emergencies, leaves the country vulnerable to volatile global markets and opportunistic suppliers. In recent months, diesel prices in key trading hubs such as Singapore have surged past $290 per barrel, far exceeding historical norms. When combined with supplier premiums, insurance, and freight charges which have ballooned from around $5 to nearly $60 per barrel the landed cost of diesel has approached $350 per barrel.
This sharp escalation has not been matched by domestic pricing adjustments. Fuel, particularly diesel, continues to be sold well below cost, resulting in losses exceeding Rs. 280 per litre. The financial strain is compounded by the sheer scale of procurement: a standard 40,000-tonne shipment now costs close to $70 million, more than double previous levels. These losses ultimately feed into broader fiscal pressures, as the Government absorbs the gap between cost and retail price.
Beyond global price shocks, structural inefficiencies within Sri Lanka’s fuel supply chain have intensified the problem. The country’s sole refinery, built over six decades ago, was originally designed to process Iranian crude. With sanctions disrupting that supply, Sri Lanka has struggled to adapt to alternative crude types. Efforts to source from markets such as Abu Dhabi have faced logistical setbacks, including delayed shipments that have forced costly refinery shutdowns and restarts.
Meanwhile, alternatives like U.S.-sourced crude offer availability but at the expense of longer transit times and higher freight costs, reducing their practicality. As a result, the country remains caught between limited refining flexibility and expensive imports of refined petroleum products.
Critics argue that the procurement system itself lacks transparency. The tender process, which should ensure competitive pricing, is often bypassed or undermined by urgent spot purchases. This creates opportunities for inflated premiums and weakens oversight. Without robust checks and balances, the system risks becoming susceptible to manipulation.
The broader economic implications are significant. By keeping fuel prices artificially low, the Government effectively subsidizes energy consumption, distorting market signals. Businesses and consumers operate under prices that do not reflect real costs, with the economy absorbing hidden losses.
Unless reforms are introduced to strengthen procurement practices, diversify supply sources, and modernize infrastructure, Sri Lanka’s fuel import system will remain vulnerable not only to global shocks but also to internal inefficiencies that continue to drain public finances.
By a Special Correspondent