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IMF holds Sri Lanka to power pricing promise
View(s):By Kapila Bandara
Just months after electricity tariffs were cut sharply, a short-term relief to households and industry, the IMF has told Sri Lanka that consumers must be asked to pay according to the actual cost of generating and distributing electricity, holding the government to a promise it has made.
The IMF declared that “cost-recovery electricity pricing is essential’’ in a statement in Washington Friday after the fourth review under the 48-month Extended Fund Facility Arrangement.
The IMF also imposed a condition. Approval of the fourth review of the reform programme will depend on Sri Lanka carrying out “prior actions relating to restoring electricity cost-recovery pricing and ensuring proper function of the automatic electricity price adjustment mechanism’’.
After the third review in February the government promised to “ensure that the tariffs are increased to the cost recovery level at the next tariff revision in April’’.
At the time the IMF said Sri Lanka breached the structural benchmark on cost-recovery electricity prices on 17 January. Electricity tariffs were cut by 21.9% overall from January until June, while the Ceylon Electricity Board was not in favour, proposing 16% instead.
Cost-recovery electricity pricing “needs to be restored without delay’’, the IMF insisted.
The government pledged to “restore cost reflective energy pricing by allowing the existing automatic adjustment mechanism to function unimpeded.’’ This means revisions every three months. This has not happened regularly.
Now, after the fourth review, the IMF reminds Sri Lanka again that restoring cost-recovery electricity pricing is essential to minimise fiscal risks and enable appropriate electricity infrastructure investments.
In Washington on Friday, the IMF and Sri Lanka agreed on economic policies to wrap up the fourth review of the reform program. Once it is approved by the IMF Executive Board, Sri Lanka will have access to about US$344 million in financing.
The CEB posted an annual profit of Rs. 148.6 billion for 2024 and reduced short-term borrowings and liabilities to Rs. 123.6b from Rs. 292.8b by end 2023. Long-term liabilities dropped to Rs. 409b from Rs. 413.3b.
In 2023, CEB received Rs 26b in equity-funding to settle dues to independent power producers and Ceylon Petroleum Corporation.
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