News
Door opens for electricity tariff upward revision in June
View(s):By Kapila Bandara
Policymakers stirred up by repeated IMF admonitions have left the door open for an upward revision of electricity tariffs by June, when the next financing slice of US$344 million is due for executive board approval.
Twice in recent days (in early April and in Washington the week before) the IMF reminded Sri Lanka that the cost recovery electricity pricing structural benchmark had been breached and fiscal risks could increase.
Tariffs should have been revised back up by the Ceylon Electricity Board and the regulator, the Public Utilities Commission of Sri Lanka, in April on a quarterly schedule. But it was not done.
Authorities took a roundabout way to explain why the April tariff revision was skipped.
Minister of Labor and Deputy Minister of Economic Development, Dr. Anil Jayantha said this week: “Once the the CEB gives the data to the PUCSL, the projections should be clarified and it has to be audited. CEB and PUCSL will discuss and come to an agreement but there was no such agreement in April. This does not mean cost-recovery pricing is not being done.’’
Such an argy-bargy erupted between the regulator and CEB before the 17 January electricity tariff cut of 21.9% overall from January to June. The CEB frowned, proposing 16% instead.
Dr Jayantha said the IMF was informed of the lack of agreement [between regulator and CEB] and Sri Lanka sought time until June so that if there are problems with the assumptions, “we can clear them and proceed’’. He declared: “The IMF agreed.’’
Evan Papageorgiou, the new IMF head of mission for Sri Lanka said this week that the “continuous structural benchmark on electricity cost recovery pricing is still not met’’.
“And that means that the price of the tariff — it does not match, does not create enough of an ability for the utility, for the CEB, to be able to meet its costs, the generation costs, and transmission and distribution.
“In addition to that, the automatic tariff adjustment mechanism based on the bulk supply transaction account, the BSTA, has not operated as we envisaged. And the April tariff revision that was meant to take place in the second quarter of this year was not implemented. So as a result of that, given the criticality of electricity cost recovery and under the program, we have proposed, IMF has proposed, the introduction of prior actions relating to restoring electricity cost-recovery pricing and ensuring proper function of the automatic electricity price adjustment mechanism, the BSTA.’’
Mr Papageorgiou said implementing prior actions is a requisite for the completion of the fourth review. The IMF defers to the authorities and to the regulator, the PUCSL, on the exact timing for implementing the prior actions, he said.
He said finalising the fourth review will “hopefully’’ be “in two months’ time or so, by, let’s say, June’’.
Dr Jayantha also referred to the automatic 10% electricity price adjustment and said the mechanism will be ensured. He noted the risks of CEB’s past short-term borrowings and that the balance sheet has been cleaned up.
Financial records show CEB’s interest costs on all manner of borrowings (loans, bank overdrafts) have been significant. In 2023, CEB’s interest expenses were Rs.36.873b. Group working capital was a negative Rs.9.288b.
In electricity tariff pricing, direct costs such as fuel, coal, and power purchases are dominant elements.
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