Last week nearly a thousand fuel distributors made an announcement that triggered nationwide panic, sending people scrambling to petrol filling stations in fear of a looming fuel crisis. The cause of this mass hysteria – the Fuel Distributors’ Association said they would stop supplying petrol and diesel to state institutions and cease placing fuel orders, as a result long queues could be seen at fuel stations across the country causing a frenzy.
Of course, this isn’t the first time we’ve been here. A fuel crisis under the previous Government had many of us well-acquainted with long queues and the dread of an empty tank. But let’s not forget; the nightmare of Gotabaya Rajapaksa era wasn’t just about fuel shortages. Oh no, that was the ‘golden age of shortages’—LP gas was also in short supply. Let’s not forget the infamous ‘blow-up’ incidents where gas cookers exploded while people were just trying to make a simple meal.
So, when the Fuel Distributors’ Association pulled this stunt, it was as if déjà vu hit the nation, and suddenly everyone was transported back to the dark days of mismanagement. Who could blame the citizens for fearing the worst? But then, who could not blame those few fuel businessmen for stirring up such chaos when the country’s fuel reserves are more than enough to last an entire year? It’s almost as if they were playing a game of ‘how to create a crisis when there’s no actual need for one.’ After all, this is the same country that once saw fuel and gas go from being scarce to explosive in record time.
Prevent artificial fuel shortage
However, the Government swiftly intervened to prevent an artificial fuel shortage that certain groups were attempting to create in the country to incite public unrest. This followed the Fuel Distributors’ Association’s announcement to halt credit sales to Government institutions and suspend fuel orders, which had sparked panic buying of fuel across the country.
The dispute between fuel distributors and the Government, which began from March 1 over the reduction of commission from three percent to approximately 1.7 percent under a new fuel pricing formula was resolved through negotiations and legal considerations.
Disruptions in fuel distribution
The media coverage of the fuel distributors’ public announcement fueled panic buying. Behind the scenes, tension had been simmering between fuel distributors and the Ceylon Petroleum Corporation (CPC). Long lines of vehicles also formed at fuel stations on Sunday (March 2) when trade unions announced the strike.
President Anura Kumara Dissanayake has reiterated the Government’s firm stance against providing commissions to any group, advocating for the use of tax revenue to benefit the nation as a whole. The President has instructed the Chairman of the Ceylon Petroleum Corporation (CPC) that under no circumstances should commissions be paid to any group from Government taxes. He reiterated the Government’s commitment to equitable resource distribution and fiscal responsibility.
At the heart of the dispute was the CPC’s decision to abolish the three percent commission previously granted to fuel distributors replacing it with the new payment formula.
The three percent commission was introduced in March 2022 to help distributors cope with rising fuel prices. However, CPC Chairman D.J. Rajakaruna later deemed this commission unlawful saying that it led to excessive payments totalling Rs. 35.4 billion due to the outdated pricing structures.
The CPC engaged in discussions with fuel distributors to address their concerns about the new commission formula. Chairman Rajakaruna expressed readiness to negotiate and added that any attempts to disrupt fuel distribution would be met with legal action.
Fuel distributors being aggrieved by the reduction in commissions threatened to take trade union and legal action against the CPC citing a breach of contractual agreements. They said that operating under the new commission structure was financially unfeasible.
The CID initiated an inquiry into alleged attempts to disrupt the fuel distribution network, following complaints about groups posing as fuel distributors, causing disturbances. The authorities warned of legal consequences for actions hindering public services.
However, following a discussion last Wednesday with CPC officials, the Fuel Distributors’ Association agreed to cooperate with the CPC’s new payment formula for a month, during which they will submit their expenses for review along with other operational concerns.
Lack of discussion
Vice Chairman of the Fuel Distributors’ Association, Kusum Sananayake said, “We have realised that our decision has caused difficulties for the public. The issue escalated due to the lack of discussion”. However, the authorities now understand that this matter cannot be resolved unilaterally and dialogue is necessary, he said, “I urge all distributors to resume operations immediately and continue fuel distribution as before,” Senanayake said.
Asked why that the CPC could not intervene to prevent the fuel distributors’ from engaging in trade union action that led to long queues at fuel stations, Chairman Rajakaruna said that the ongoing litigation has created constraints in resolving the dispute as both parties had to deal within certain boundaries.
He said the tension has been escalating between the CPC and the fuel distributors, particularly due to legal disputes which have strained relations and hindered open communication.
Rajakaruna also acknowledged public concerns, suggesting that the issue might have been resolved sooner if there had been cordial discussions between the CPC and the distributors. Unfortunately, ongoing litigation has prevented open dialogue, complicating efforts to reach a resolution.
The Government ministers expressed concern that some politically interested group was behind the fuel distributors’ strike action to create public unrest and garner petty political mileage
During the parliamentary discussions, the Government highlighted allegations that certain Opposition politicians owned fuel stations, suggesting these associations might influence the ongoing fuel distribution crisis.
Deputy Minister Arun Hemachandra presented a list of individuals purportedly linked to fuel stations including former President Chandrika Bandaranaike Kumaratunga, former Ministers Akila Viraj Kariyawasam and Prasanna Ranatunga and several Opposition MPs.
Hemachandra said that these political connections could be contributing to the current fuel distribution challenges.
In response, Opposition MPs refuted these claims. Chief Opposition Whip Gayantha Karunathilaka said that the fuel station associated with his family was established in 1955 by his grandfather, long before his birth and denied using political influence to acquire it. Similarly, MP Harshana Rajakaruna said that while his grandfather owned a fuel station but neither he nor his family currently own one and denied any political favouritism in its acquisition. MP Kins Nelson also denied owning a fuel station and called on the Speaker to address the misinformation.
Deputy Minister Hemachandra revealed that over 40 petrol stations are allegedly linked to current and former opposition politicians and their associates across various provinces, further fueling the controversy.
These conflicting statements have intensified the political debate, with Government representatives suggesting that Opposition members’ involvement in fuel distribution may be exacerbating the crisis, while Opposition members deny any wrongdoing, attributing their associations to historical family ownership rather than political influence.
After discussions, an agreement was reached to implement the CPC’s new commission formula. The Government said that the formula would be applied fairly and further discussions were scheduled to address additional proposals from fuel distributors.
On March 10, 2022, the former Government issued a circular mandating an additional three percent commission to fuel distributors. This commission was intended to help distributors manage increased fuel prices being applicable when the diesel price exceeded Rs. 121 per litre.
However, this system led to significant payments, amounting to over Rs. 35 billion annually, being distributed among less than a thousand distributors. The National Audit Office and the judiciary later deemed these payments unlawful as it was seen as diverting public funds to a small group of businessmen instead of benefiting the Treasury.
Sri Lankans have been paying more for fuel due to dealer commissions, an audit revealed earlier. In 2022, the national auditor found that fuel prices had increased by Rs 10 per litre after the upper limit on dealer commissions was lifted. Specifically, the prices of petrol Octane 92 and Octane 95 surged by Rs 8.64 and Rs 11.10, while the cost of Lanka Auto Diesel and Lanka Super Diesel climbed by Rs 9.27 and Rs 10.95.
The increase in dealer commissions followed Cabinet decision No. 22/0673/522/002, dated 23 May 2022. For instance, the commission for Octane 92 was raised to Rs 13.50 per litre, far exceeding the Rs 4.86 set by the CPC. This resulted in an increase of Rs 8.64 per litre.
The auditor cautioned that such adjustments could jeopardise the sustainability of the CPC.
New payment formula
In response to these findings, the Ceylon Petroleum Corporation (CPC) abolished the three percent commission from March 1, 2025, replacing it with a new payment formula designed to align distributor margins with actual operational expenses. This change led to disputes with fuel distributors resulting in protests and concerns over potential fuel shortages.
In response to the abolition of the three percent commission and the introduction of the new formula—which distributors felt inadequately covered their operational costs—fuel distributors ceased placing new fuel orders starting March 1, 2025. This action led to panic buying of petrol and diesel leading to long queues at filling stations across the -country.
The Government, however, assured the public that there was no fuel shortage and that the queues were a result of panic buying fueled by the distributors’ actions. CPC officials emphasized that the new commission formula was designed to be fairer and more aligned with distributors’ operational expenses, potentially offering higher earnings than the previous three percent commissions.
The situation escalated as distributors halted credit sales to Government institutions and suspended fuel orders, leading to fears of a complete fuel shortage. Despite these concerns, the CPC maintained that sufficient fuel reserves were available and that distribution continued as usual at both Government and corporate stations.
In response to the Government’s decision to abolish the three percent commission and implement a new payment formula, fuel distributors submitted a petition to the Presidential Secretariat. They sought intervention from the Government to resolve the dispute and restore the previous commission structure. Distributors argued that the new payment formula which was lower than the three percent commission, was not sufficient to cover their operational costs and was unfair and unsustainable for their business model.
In response, the Government acknowledged the issue and undertook to review the distributors’ concerns based on their actual operating expenses. The aim was to ensure that the revised commission structure would be fair and align with the financial realities of the fuel distribution sector. The Government promised to engage with the distributors and make adjustments to support their sustainability while maintaining fairness in the system.
Pic: Rukmal Gamage
