Sri Lanka Cuts Fuel Price Ahead of Elections

Sri Lanka slashed fuel prices by up to nearly 6 percent on Saturday to reflect falling global oil prices and said it would forgo subsidies and allow market forces to determine prices at the pumps from now on.

The fuel price reduction comes ahead of snap presidential elections in January and two months after it cut energy prices across the board.

"Don't link this to the election in any way. As a result of the drop in world oil prices, better management and better debt collection we were able to reduce the prices," Minister of Petroleum Industries Anura Priyadharshana Yapa said on Saturday.

India, Indonesia and Malaysia have also cut fuel subisidies in recent weeks to take advantage of lower world prices and reduce fuel subsidy bills which have strained their finances.

Sri Lankan President Mahinda Rajapaksa remains a popular leader as he seeks re-election for an unprecedented third term, but his image has suffered after the defection of his own party general secretary, who was also the health minister.

Nine loyalists from Rajapaksa's government including Health Minister Mithripala Sirisena have defected since he announced the snap poll last month. Sirisena will run against Rajapaksa as the consensus candidate of a united opposition.

State-run Ceylon Petroleum Corporation said late on Friday that the prices of all petrol and diesel would be reduced by 7 rupees a litre and kerosene by 5 rupees a litre with effect from midnight.

Petrol prices were reduced by 4.5 percent to 150 Sri Lankan rupees ($1.14) a litre, diesel by 5.9 percent to 111 rupees a litre and kerosene by 5.8 percent to 81 rupees a litre.

In September, the president reduced the fuel prices by 2.5 to 18.9 percent.

Sri Lanka had until September maintained higher electricity and oil prices to help recover from losses built up before the state-run Ceylon Electricity Board (CEB) and Ceylon Petroleum Corporation (CPC) reduced price subsidies early last year.

"As a developing country we won't be able to continue with subsidies, in future we will not sell below cost," Yapa said referring to the stopping of subsidies at the pump.

Priyadharshana Yapa also said the recent price reduction will not impact the profitability of the company in 2014. It expects a 4 to 8 billion rupee profit for the year. ($1 = 131.1000 Sri Lankan rupee)

(Reporting by Ranga Sirilal; Editing by Kim Coghill)