ECONOMYNEXT – Sri Lanka’s parliament passed an amendment to the island’s new electricity law that was expected to break up the sector in line with a plan supported by multilateral lenders which would also attract new private investment.
The changes will keep parts of the existing system 100 percent under Government ownership permanently, Energy Minister Kumara Jayakody said.
The National People’s Power administration had a plan for the sector before they were elected, and there were eight months of discussions, after which some changes had been made, but some suggestions the government could not agree to, due to a ‘covenant’ with the people he said.
Sri Lanka had ‘missed buses’ in the past where low cost generating plants in the CEB, long term generation plan had been systematically sabotaged by various parties forcing the entity to buy high-cost liquid fuel plants by the 1990s, including gas turbines, he said.
Observers say coal has been systematically sabotaged, some large hydro plants, such as the Upper Kotmale which are cheap renewable initiated by the CEB after the Mahaweli project, had been delayed by both political elements and environmentalists, at times.
Environmentalist pressure also turned the Kukule Ganga project, originally a storage plant with high rainfall into a run of the river plant which spills during the rainy season, though the arguments for reducing inundation of the Sinharaja forest was generally accepted.
Opposition legislator Kabir Hashim raised concerns over an advisory committee which will now be appointed solely by the Minister in charge which may not be accountable, he said.
Under the last amendment it was a council appointed by the cabinet.
Hashim also raised concerns over the replacement of ‘least cost’ dispatch with the term ‘security constrained economic dispatch’.
At a sectoral committee a request had been made to define what ‘security constrained economic dispatch’ is but the answer had been given that it was the US definition, he said.
The number of entities that the CEB will be broken up or unbundled will be reduced to four, a single distribution company instead of four and a national systems operator and a transmission company.
Deputy Minister of Ports, Janith Ruwan Kodithuwakku said instead of a break up on geographic terms, there will be in the future, distribution companies which could sell electricity as a service competitively to any customer.
Concerns were also raised that the existing Act passed during the term of then Energy Minister Kanchana Wijesekera had a model which was bankable and could raise finance from multilaterals and also private sector for future expansion of the system.
Opposition legislator Harsha de Silva raised concerns pointing to a letter written by multilaterals and the Asian Development Bank that changes agreed under a policy loan already given, are being changed and endangering future financing.
He also raised concerns that the changes were coming due to the advice of only one person Pubudu Niroshan.
The transmission company in particular needed large volumes of financing but had very little revenues, he said.
When queries were raised over the concerns of the multilateral lenders, an answer had been given that China’s Asian Infrastructure Investment Bank would finance grid expansion.
However, de Silva said the AIIB required government guarantees and were not willing to take on the risk of the electricity sector.
As a result, the central government would have to give Treasury guarantees to the CEB, which had a high-risk premium of around 4.8 percent for dollar loans.
There are limits to Treasury guarantees the government can give after sovereign default under new prudential fiscal management laws.
The dollar loans from AIIB would therefore cost around 11 percent, de Silva said and there was no assurance that the agency would give large volumes of finance.
The transmission company only had about 75 million dollars of revenues but required several billion dollars in finance, he said.
Deputy Ports Minister Kodithuwakku said though the transmission grid existing infrastructure was fully government owned there was room for a subsidiary to be set up which could be privately financed.
A key problem was the push for high-cost generation by various parties, the latest of which was non-conventional renewable energy like solar, he said.
At the debate also there was heavy pressure for the CEB to accept renewables at above market price and global costs.
It is not clear whether the pressure is coming due to lack of commercial incentives for a single buyer to purchase the cheapest power, unlike an integrated unit like Tata power in India, which does not need any outside intervention to buy the cheapest generating plants.
The CEB unions in the past had to resist pressure from the political establishment to push take-or-pay LNG plants. (Colombo/Aug06/2025)
