82 paid only SL Rs 65 (US$0.51) (MFP 2013). The price subsidies for the power sector accounted for nearly three ‐fifths of the CPC’s losses (rising from half in 2011), followed by subsidies for diesel fuel (Figure 22).

**Figure 22: Breakdown of CPC’s losses in 2012**

<!-- Start of picture text --> 90 RON fuel for<br>gasoline, industries,<br>3% 2%<br>kerosene,<br>4%<br>diesel, power,<br>32% 58%<br>Source : MFP 2013.<br><!-- End of picture text --> The government issued a treasury bond in 2012 for SL Rs 60 billion (US$470 million), of which SL Rs 50 billion (US$390 million) was to cover outstanding payments owed by the CEB and the remaining Sl Rs 10 billion (US$78 million) for payments owed by other state agencies. Even so, the outstanding dues from various enterprises stood at SL Rs 102 billion (US$800 million) at the end of 2012. The CPC recovered about 45 percent of its outstanding receivables in 2013 and 36 percent in 2014. In accordance with 2014 budget proposals, treasury bonds worth SL Rs 30.7 billion (US$235 million) were issued in February 2014 to settle the outstanding debts owed by the CEB and several government

# departments (MFP 2013, 2014, 2015).

To reduce fuel price subsidies in the power sector, a fuel adjustment charge of 30 percent was levied beginning in March 2008. However, various exemptions have been granted since, eroding revenue from this source. The fuel adjustment charge was re‐imposed on most consumer categories in February 2012. Petroleum product prices were raised in February 2013. Power tariffs were raised in April 2013, and the prices of fuel oil charged in the sector were raised to SL Rs 90 (US$0.71) per liter for high‐sulfur and SL Rs 100 (US$0.79) per liter for low‐sulfur fuel oil to reach cost recovery. However, following the commissioning of more coal‐fired power generation units, power tariffs were lowered for certain consumer categories in September and November of 2014 by 15 percent and 25 percent, respectively, when a large reduction in hydropower generation during the first half of the year forced a greater reliance on more expensive thermal generation. As a result, the cost of electricity supply exceeded the average tariff by SL Rs 1.90 (US$0.015) per kWh, turning the CEB’s operating profit of SL Rs 23 billion (US$180 million) in 2013 into a loss of SL Rs 13 billion (US$100 million) in 2014 (CBSL 2009–2015; MFP 2013, 2015).

Another departure from the policy of cost‐reflective prices is the pricing policy toward kerosene. An indication of whether and how much kerosene is underpriced (or undertaxed) is the price difference between kerosene and diesel, because on the world market their prices are essentially the same. In Sri Lanka, the price difference between diesel and kerosene was almost eliminated from June 1993 to March 1994, but has reappeared. The difference stayed less than SL Rs 10 (US$0.10) per liter until 2004, when it rose to SL Rs 19.5 (US$0.19) per liter between June 2005 and June 2006. The difference fell to SL Rs 9 (US$0.07) per liter in 2012, but grew to SL Rs 36 (US$0.26) per liter in 2015. A clear indication of underpricing is the difference between kerosene for household use and kerosene for industrial users, never more than SL Rs 10 per liter until September 2014, when it widened to SL Rs 29 (US$0.22) per liter