Top 30% income cohort consumes 70% of fuel: Advocata CEO highlights a stark imbalance in Sri Lanka’s energy consumption, raising concerns over pricing policies and the long-term sustainability of current fuel management strategies.
Top 30% income cohort consumes 70% of fuel: Advocata CEO highlights pricing gaps
Sri Lanka’s fuel consumption patterns remain heavily skewed towards higher-income groups, according to Advocata Institute Chief Executive Officer Dhananath Fernando, who argues that pricing reforms—not rationing alone—are essential to address inefficiencies in the system. Speaking at a recent webinar hosted by CMA Sri Lanka on the economic impact of the Middle East conflict, Fernando pointed out that the top 30% income cohort accounts for nearly 70% of total fuel consumption.
This imbalance, he noted, underscores the need for more targeted and economically rational policy responses. While Sri Lanka introduced a QR-based rationing system during the height of the fuel crisis to manage limited supplies, Fernando cautioned that such mechanisms are not viable as a long-term solution. Instead, he emphasised the importance of allowing market-driven pricing signals to influence consumption behaviour.
“Because 70% of the fuel is consumed by the top 30% of the population, we have to be smart about how we consume,” he said, stressing that fuel pricing Sri Lanka must better reflect actual costs to encourage more efficient usage.
Despite a recent increase of more than 25% in fuel prices following escalating geopolitical tensions in the Middle East, Fernando argued that prices still fall short of cost-reflective levels. Based on estimates by the Advocata Institute, petrol prices would need to rise by approximately Rs. 100 per litre, while diesel could require an increase of around Rs. 200 per litre to fully align with prevailing market conditions, assuming current tax structures and margins remain unchanged.
He further called for the removal of price caps, suggesting that liberalising the market could enable greater private sector participation in fuel imports. According to Fernando, allowing private players to import and sell fuel at market rates would introduce competition and improve supply resilience, particularly during periods of global volatility.
“If private players have the ability to bring fuel through alternative channels at higher prices, we should be able to sell at a higher price,” he said, reinforcing the argument for deregulation within the energy sector.
The discussion also touched on the broader implications of fuel policy on Sri Lanka’s macroeconomic stability. Fernando warned that external shocks—such as geopolitical conflicts—can have cascading effects on domestic economic indicators, including inflation, export competitiveness, and the balance of payments. Rising energy costs are likely to translate into higher transportation and production expenses, which in turn could drive up food prices and erode household purchasing power.
At the same time, he acknowledged the social dimension of fuel pricing reforms, emphasising that any move towards cost-reflective pricing must be accompanied by targeted welfare measures. “It doesn’t mean when the prices go up, the poorest of the poor should bear the burden,” he said, advocating for well-designed social safety nets to protect vulnerable groups.
This aligns with ongoing policy discussions within the Government. Anura Kumara Dissanayake recently indicated that authorities are reviewing fuel import taxes and exploring subsidy mechanisms aimed at cushioning the impact on lower-income households. He also noted that around 40 private firms have been granted temporary licences to import fuel using foreign currency, particularly for industries such as tourism and export manufacturing that rely heavily on uninterrupted energy supplies.
Fernando reiterated that while administrative controls like QR-based rationing were necessary during periods of acute shortage, they should not replace market-based solutions in the long run. Overreliance on such systems, he warned, could distort consumption patterns and discourage efficiency.
From a policy standpoint, the data indicating that the top 30% income cohort consumes 70% of fuel suggests that blanket subsidies or universal pricing controls may disproportionately benefit wealthier segments of society. Instead, targeted interventions—combined with transparent and cost-reflective pricing—could yield more equitable and economically sustainable outcomes.
As Sri Lanka navigates ongoing external pressures and domestic recovery efforts, the debate over fuel subsidy Sri Lanka and pricing mechanisms is likely to remain central to economic policymaking. Analysts argue that balancing fiscal discipline with social protection will be critical in ensuring both economic stability and public acceptance of reforms.
Fernando concluded by emphasising that while external shocks are inevitable, the effectiveness of policy responses ultimately determines their impact. “External shocks happen all the time, but how we respond can cause bigger issues than the crisis itself if we use the wrong tools,” he said, underscoring the need for data-driven, forward-looking decision-making.