By: Staff Writer
August 10, Colombo (LNW): Sri Lanka’s latest coal controversy reveals how a problem that begins at the fuel-import stage can quickly spread across the country’s electricity system and economy.
A report submitted to Parliament has estimated that Electricity Generation Lanka (Pvt) Ltd (EGL) suffered Rs. 5.68 billion in direct financial losses between March 1 and June 30, 2026, because of additional coal consumption linked to low-quality fuel supplied under the 2025-26 tender.
The calculation is significant because it measures the financial penalty created by inefficient fuel use rather than simply the purchase price of the coal. EGL compared the plant’s actual specific coal consumption with its historical average under normal operating conditions and found that more coal was required to generate electricity.
In practical terms, Sri Lanka was paying for fuel that delivered less efficient power generation.But the real economic impact could be considerably larger.
EGL explicitly excluded the cost of electricity generated from alternative sources to compensate for the resulting energy shortfall. The company said it could not calculate this component because the precise generation sources used to cover the shortfall were not known.
That omission is important for an economy where electricity generation depends heavily on imported fuel and where changes in generation costs can have consequences for public finances, businesses and consumers.
If inefficient coal generation forces greater reliance on more expensive alternatives, the country may face a second financial burden after paying for the original shipment. The result is a chain reaction: poor-quality fuel increases coal consumption, reduced output creates an energy gap, and that gap must then be filled elsewhere.
There are also questions about the physical impact on the power plant.
During the four-month period, EGL recorded Rs. 1.33 million in routine maintenance expenses that were likely attributable to the low-quality coal. The work included coal mill maintenance, removal of raw coal and pyrites, and cleaning coal blockages.
Although EGL has not identified sufficient evidence to quantify abnormal deterioration or degradation of plant equipment, the maintenance requirements demonstrate that fuel quality can translate into operational costs.
The contractual arrangements also deserve scrutiny. Under the tender, 80 percent of the payment was made after shipment or loading based on the Bill of Lading quantity, load-port quality reports and required documentation. The remaining 20 percent was payable after the coal was discharged at Puttalam, when final quantity and quality could be established.
The supplier’s US$14.75 million performance bond, approximately Rs. 4 billion, was subsequently forfeited, indicating that the contractual safeguards had financial consequences.
EGL also reported recovering US$51.27 million, or approximately Rs.16.98 billion based on the Central Bank buying rate on August 3, 2026, subject to contractual adjustments. However, the report does not state that this entire recovery represents compensation for the coal losses.
The central economic lesson is clear: the cost of poor-quality imported fuel can extend far beyond its purchase price. For Sri Lanka, the unanswered question is whether stronger quality controls and tighter procurement safeguards could have prevented billions of rupees in additional electricity-generation costs.
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