Govt. raises electricity tariffs by 66 percent; hurried moves to get PUCSL approval when dissenting chairman was away Local council elections likely to be put off; opposition parties vow counteraction SJB issues blueprint for economic recovery while JVP sets up military officers’ wing Conduct of western envoy causes concern as she seeks to meet members [...]


Shock treatment in order to meet IMF deadline


  • Govt. raises electricity tariffs by 66 percent; hurried moves to get PUCSL approval when dissenting chairman was away
  • Local council elections likely to be put off; opposition parties vow counteraction
  • SJB issues blueprint for economic recovery while JVP sets up military officers’ wing
  • Conduct of western envoy causes concern as she seeks to meet members of judiciary to get a favourable ruling on polls


By Our Political Editor

Sri Lanka on Wednesday met an International Monetary Fund (IMF) deadline that triggered the process of approval of the Extended Fund Facility (EFF) of US$ 2.9 billion over 48 months. Now, the Fund’s board of directors will meet formally next month to place the stamp of approval.

It came when the government succeeded in having members of the Public Utilities Commission of Sri Lanka (PUCSL) approve the tariff hike of 66 % on electricity. There were dramatic moves on Wednesday before the decision to increase tariffs, a stunning shock for consumers. PUCSL Chairman Janaka Ratnayake was away in Australia. The government learned that he had not appointed anyone to act on his behalf and kept a decision pending.

A meeting of other directors was called hurriedly. They spoke to each other in a meeting arranged via zoom and endorsed the decision to raise tariffs. The decision was conveyed within hours to the IMF which had set Wednesday as the deadline for a government response. One source familiar with the events said 9 p.m. Washington time was set as the deadline. The PUCSL is the economic, technical and safety regulator of the electricity industry and other utility services. It regulates the electricity industry through licences, regulations, rules, and methodologies. Any tariff revisions require its approval and PUCSL Chairman Ratnayake had steadfastly resisted moves for an increase.

Electricity tariff revisions had forced the IMF to put on hold the approval of its Extended Fund Facility (EFF), which has been set up to provide assistance to countries experiencing serious payment imbalances because of structural impediments, slow growth or an inherently weak balance of payments position. No sooner the IMF had acknowledged that the government had increased electricity tariffs, did President Ranil Wickremesinghe react.

His media division said he told a discussion with rice mill owners last Thursday that the IMF’s Extended Fund Facility would be granted by March (next month). According to other sources, the IMF’s board directors are due to meet to sanction the facility. The move, no doubt, is a major step forward and will help the government to obtain bridging finance from other sources including multilateral agencies.

However, the electricity tariff increase comes as a major blow to fixed-income groups whose wages have remained static for many years. This is the second increase within six months. The previous increase was by 75%. Worse still, the shocking effect of this increase will be enormous and have an impact on prices of goods and services. That will include prices of essential food items including packets of cooked rice and curry. Coupled together with the increase in taxes, already effective, the burden cast on the income-earning class could be devastating.

That the IMF had demanded upward revision of electricity tariffs and income tax, though little known by the people, is a fact. The government had no alternative but to heed the demand (including others) if it were to obtain the EFF. Of course, it is paying a heavy price in the form of angering a very vast segment of the country’s citizenry by imposing further hardships on them. Former President Gotabaya Rajapaksa, who mismanaged the economy and plunged the country into bankruptcy together with his top aides, flew to Malaysia en route to China on Thursday at the invitation of Beijing. In December, he spent a holiday in Dubai. He has also been attending diplomatic events in Colombo.

As reported earlier, he has retained the security contingent that was assigned to him as President. The team comprises more than 100 commandos and specially trained groups besides the police and their Special Task Force (STF) personnel. Weeks earlier, he moved to his private residence at Mirihana in Nugegoda from the official bungalow allotted to him at Malalasekera Mawatha (off Baudhdhaloka Mawatha). He told confidants that the residence, free of charge which he was entitled to, was “too noisy” in view of the traffic on the main road. A high-ranking source re-sponded to the report in these columns last week that he proposed to move into the government bungalow at Stanmore Crescent, the one that was temporarily occupied by Mahinda Rajapaksa, twice former President. He has since shifted to his Wijerama residence which was under repairs. The source said the Stanmore Crescent bungalow would not be allotted to Gotabaya Rajapaksa. This is in the light of this official residence being assigned to the Ministry of Foreign Affairs and also being the official residence of the Minister.

The Sunday Times can reveal today that former Finance Minister Basil Rajapaksa had (before quitting office) worked a deal with China for a bigger loan to cover commitments. It was nearing fruition when President Gotabaya Rajapaksa called upon him to resign. When he refused, he successfully obtained the resignation of Prime Minister Mahinda Rajapaksa thus making the Cabinet of Ministers non-operational.

Power and Energy Minister Kanchana Wijesekera addressing a media conference on Thursday in Colombo to explain why the Government had to take a painful decision. Pic by Indika Handuwala

Moves to delay local council elections

The compulsions to heed the IMF demands and thus resuscitate the economy, the government is conscious, would make it more unpopular. In fact, President Wickremesinghe said so during his policy statement on February 8 after the ceremonial opening of Parliament. He noted that such decisions would have to be made for the betterment of the country. This consciousness has even extended to the conduct of the local council elections. Government leaders are aware that public support would be very minimal at the outcome. Hence, the Election Commission (EC) is facing several obstacles making it increasingly clear the local council elections will not be held on the scheduled day. So much so, the Commission has put off postal voting scheduled for February 22, 23, 24 and 28. If there were some obstacles that the Election Commission was able to overcome, the printing of ballot papers by the Government Printer caught the EC in a bind. With the onus of answering questions on exercising public expenditure being placed in their own hands, officials had to play safe lest they become answerable. The Government Printer sought funds in advance in a diplomatically worded letter. It even sounded like advice being sought from the EC in the wake of the restrictions placed.

On Friday, EC Chairman Nimal Punchihewa met Treasury Secretary Mahinda Siriwardena to discuss the difficulties. The Treasury Secretary was to explain the ongoing economic crisis and refer to a Cabinet decision that funds should only be utilised for essential services. Such services, he told Chairman Punchihewa, have been itemised and did not include expenses for the conduct of local elections. In addition, Siriwardena said the Cabinet had decided on February 14 that if expenses were to be met from outside the list of items, special approval had to be obtained. EC Chairman Punchihewa told the Sunday Times, “We were therefore forced to postpone the dates for postal voting. We are now waiting for the Supreme Court to decide. Originally, the SC hearing was to be held on February 23 but I understand that the date has now been advanced to February 21.” Chairman Punchihewa now wants to apprise the Supreme Court of the obstacles he is faced with. It is to come in the form of a petition.

At the highest levels of the government, there is also another matter of serious concern. It has received reports that a Colombo-based western envoy, described as being ‘over enthusiastic,’ is seeking meetings with members of the judiciary to canvass them to favour the conduct of local council elections. The Sunday Times learned that the details of her conduct were now being studied and the government may sound a strong note of caution. How this is to be done is yet to be determined. “Such acts,” a high-ranking source said, “constitute direct personal interference in the internal affairs of the country. We cannot condone such acts under any circumstances. They have to respect our sovereignty and independence. If not checked, this may become a precedent.” 

It may be recalled that the then British High Commissioner David Gladstone was declared persona non grata for walking into a polling station during the local council elections on May 17, 1991, when Ranasinghe Premadasa was president. These polls were the first since the Pradeshiya Sabha Act came into force. The British envoy walked into a polling booth in Dickwella and alleged that United National Party (UNP) supporters were wiping the indelible ink off their fingers so that they could vote again. H.R. Piyasiri, then a state minister and in whose electorate the incident took place informed the president of the incident. He was delivered the persona non grata order on August 27, 1991.

Most opposition parties have reacted angrily to the moves to put off local council elections. Samagi Jana Balavegaya (SJB) General Secretary Ranjit Madduma Bandara said yesterday that claims that the government had no funds were untrue. “They will be short of votes if the polls are held. They will lose it badly. We demand that the government set a specific time frame during which local council elections should be held. It is the people’s right.”

Opposition political parties react

This week, the SJB also put out its own blueprint for economic recovery at a ceremony chaired by party leader Sajith Premadasa. Some questioned the timing of the release and what relevance it had to the proposed local council elections. Edited selected highlights appear in a box story on this page.

Sri Lanka Podujana Peramuna (SLPP) General Secretary Sagara Kariyawasam said, “As a political party, we do not like the postponement of the local council elections. It would violate the franchise of the people – a negative development in terms of democracy. However, if the treasury says there is no money to even buy essential goods and medicines, we have to take that into consideration. Democracy is a costly affair, but if there is a lack of funds, we have to consider it, but the Treasury should tell the people that the elections need to be postponed. It must give the Election Commission a date on which it could provide money so that election can be fixed on that date.”

National People Power (NPP) Propaganda Secretary Vijitha Herath said, “We will carry out demonstrations and resort to legal actions on the postponing of the postal vote. We also would have awareness programmes and will brief diplomats of the European Union, the United Nations and human rights organisations.”

Sri Lanka Freedom Party (SLFP) General Secretary Dayasiri Jayasekera said, “Delaying the elections is illegal as it violates the constitution. The SLFP’s view is that we would act to hold elections. However, we would not call people to the streets and bring bout bloodshed but would carry out peaceful protests.“

Pivithuru Hela Urumaya (PHU) leader Udaya Gammanpila declared, “People are angry due to poverty. If the people are unable to express their anger in a democratic way, they will take to weapons to vent their anger. That is not very good for the wellbeing of the government.

“If the government is allowed to postpone elections due to lack of funds, there will not be any elections held in the future, as Sri Lanka has expenses exceeding the income according to every budget. If political parties and people allow this, 2020 parliamentary elections would become the last election held in Sri Lanka.

“I advise the people not to resort to violence, as that would aid the government to set its trap. The government wants to create a bad situation or a blood bath so that it can enforce emergency laws and arrest people.”

The Janatha Vimukthi Peramuna (JVP) led National People’s Power established a retired military officers’ wing at a meeting held at the Youth Council premises in Maharagama. Its leader Anura Kumara Dissanayake told the gathering, “If we think of the country’s position, we must question whether we have our sovereignty. Whether we have protected the constitution and protected the independence of the country. Two court decisions held that former President Maithripala Sirisena had violated the constitution. It had been proven even in court today. The first case which was heard by a bench of seven judges of the Supreme Court and the other heard by a bench of five judges. Recently the Cabinet took a decision and issued a directive to the Secretary to the Ministry of Public Administration to refrain from accepting deposits for local council election nominations. That too is a violation of the constitution. If the first citizen and the Cabinet are violating the constitution, what is the benefit of the pledge that the tri forces give to ensure the security and protection of the constitution?”

Dissanayake named retired Major General Aruna Jayasekera, a former Security Forces Commander (East) as the Minister of Defence if the NPP comes to power. Also present at the event were retired Air Vice Marshal Sampath Pulakintha and a number of other retired officers.

For the SJB, if it was a case of introducing its economic recovery plan ahead of the planned local council elections. And for the NPP, it was the establishment of a military wing comprising retired officers and other ranks. Now that the prospects for polls have receded, these are among measures the opposition parties are taking to consolidate themselves. They sure will pose a considerable challenge to the ruling SLPP, should there be a vote. However, the question that looms large is when.

Highlights of the SJB’s economic recovery blueprint

Here are some highlights of the Samagi Jana Balavegaya’s (SJB) economic recovery plan revealed last week:

1. Transparency and Accountability

Administration must introduce and implement strong anti-corruption legislation as one of its first actions. This should include re-enacting the Independent Commission to Investigate Bribery and Corruption and implementing the United Nations Convention Against Corruption; globally accepted rules and punishments for corrupt practices.

Launching the blueprint for economic recovery at the SJB economic summit on Tuesday. Pic by M.A. Pushpa Kumara

Strengthen the legal framework to expedite the Stolen Asset Recovery Initiative (StAR); Legislate the requirement to make public, the assets and liability declarations of elected representatives and public officials; Create an independent public prosecutor’s office to legally pursue corrupt persons. The independent public prosecution office will have no conflict of interest in pursuing alleged-corrupt personnel, as opposed to the Attorney General.

Stabilise the Economy

2. Debt Crisis Management

Sri Lanka’s urgent priority is to manage the sovereign debt crisis by obtaining critical bridge financing, as well as continuing to engage with the IMF, and expediting the debt-restructuring process with creditor assurances. Concurrently maintaining the stability of the financial system is of utmost importance.

3. Monetary and Exchange Rate Policy

It is essential that the government acts to stabilise the monetary environment, using measures including exchange rate and interest rate adjustment, and monetary policy reforms.

4. Revenue Consolidation

Fiscal sector reform is fundamentally important: the budget deficit must be reduced by both widening the tax base and restraining spending. In determining tax rates, tax slabs, and tax-free allowances, the government needs to account for inflationary impact over the last two years and consider the long-term social implications of tax changes. Furthermore, tax revisions must be accompanied with measures ensuring transparency and accountability regarding how money is spent. Efficiency in tax administration must also be improved via pay-as-you-earn (PAYE) and withholding mechanisms, which were recently reintroduced along with revisions to VAT, corporate and personal income tax, and turnover tax. Unjustifiable tax exemptions should be eliminated, and the tax net widened to bring in millions who are supposed to pay but do not pay taxes. The Fiscal Management (Responsibility) Act of 2003 must be strictly enforced with revised targets and thresholds. Non-tax revenue should also be increased systematically.

5. Expenditure Control

The other aspect of fiscal reform is rationalising public expenditure, including SOE (state-owned enterprise) reform. Spending restraint ensures fiscal space for social safety nets and development spending programmes, to facilitate sustainable and inclusive growth.

6. Trade, Industry, Agriculture, and Services Promotion

While we stabilise the economy, it is critical to strengthen it by promoting trade, industry, agriculture, and services. This involves unshackling the markets from unnecessary tariffs, improving competitiveness, promoting exports and investment, integrating with Global Manufacturing Value Chains (GMVC) or Global Production Networks (GPNs), and enhancing productivity. The terms GMVC and GPN are used interchangeably in this document.

7. Public Sector Management and Digitalisation

While we stabilise the economy, it is critical to strengthen it by promoting trade, industry, agriculture, and services.

8. Energy and Utilities Reform

Energy pricing must be revised urgently to avoid damage to the fiscal and banking system. While petrol and diesel prices have been increased, the transparent, automatic cost-reflective pricing mechanism must be reintroduced for fuel and implemented for LP gas. A fuel/LP gas price stabilisation fund should be created to smooth price adjustments for the consumer. Since the current energy crisis is going to be protracted, meaningful demand management is crucial. This requires some form of smart metering and pre-paid metering to be initiated by the government, as this allows more sophisticated cost-reflective pricing mechanisms. Incentives could also be provided for night-time off-peak electricity usage. Connecting Sri Lanka’s grid with South India is another key to demand management. Using excess power to pump water back into reservoirs to increase hydro power. Using solar power is also an innovative option. Beyond this, accelerating renewable energy projects is critical. Private sector investment into solar and wind power is at a standstill due to legal impediments and lack of clarity on tariffs. This must be addressed.

Opposition Leader Sajith Premadasa in conversation with Eran Wickremeratne as the party's economic expert Dr. Harsha de Silva looks on. On his right is Harshana Rajakaruna.

Corruption in energy and utilities procurements (in power purchase agreements for electricity, or bulk procurement for fuel or LP gas) is a major problem that needs urgent and comprehensive attention, as is the inefficiency of these state-owned utilities.

9. Factor Market Reform

The labour force should be prepared through education and training to take advantage of the emerging dynamic economy, rather than being denied opportunities for growth and social mobility. The current Technical and Vocational Education and Training (TVET) framework should be drastically reformed to align the curriculum with GPN-related industry demand, keep up with technological innovation, modernise management practices, and establish private and public partnerships. English language and IT skills should be promoted at all levels of education, recognising their importance to gain quality employment. Using technology can substantially improve the coverage and cost effectiveness of skills development programmes.

Flexible and female-friendly work practices should be promoted to encourage their entry to the workforce.

Labour protection should take the form of unemployment insurance rather than archaic laws.

Ensure Equity

10. Stronger Social Safety Nets

There is an urgent need to eliminate inefficiencies in the social protection system, improve its coverage and targeting, and increase the per-family benefit. Establishment of a central system under the Welfare Benefits Board (WBB) should be fast tracked to provide cash transfers directly to beneficiaries’ bank accounts, and structured to eliminate selection bias and corruption. To facilitate this, a Unique ID like India’s Aadhaar should be designed and implemented with technical and financial assistance.

While protecting the poor and vulnerable in a shrinking economy, social protection schemes should also provide incentives for recipients to engage in income generation. To facilitate this, the government in collaboration with the private sector should support the recipients of welfare benefits to acquire skills and qualifications that will let them obtain employment. This approach to social protection aims to support people in lifting themselves out of poverty by gaining employment in an economy that is going through organic job creation.

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