Sri Lanka’s Power Sector Shake-Up: CEB’s Debt Accumulation Raises Concerns
By: Staff Writer
October 13, Colombo (LNW): The Ceylon Electricity Board (CEB) is facing scrutiny as it undergoes a significant restructuring process under the Sri Lanka Electricity Act No.36 of 2024. Central to this restructuring is the controversial decision to transfer a large portion of CEB’s debt to its hydropower unit, a move that has raised concerns among experts, politicians, and the public.
Despite reporting a net profit of 93 billion rupees by June 2024, the CEB used these gains primarily to settle its outstanding debts to renewable energy developers, thermal power plants, and coal suppliers. This financial maneuver allowed the utility to lower electricity tariffs, even as its revenue declined. Impressively, the CEB saw a 67 percent profit rise to 34.5 billion rupees in the quarter ending June 2024, mainly due to reduced financial expenses.
However, Fitch Ratings has cautioned that deviating from the current cost-reflective tariff model could weaken CEB’s financial stability and threaten the broader power generation sector in Sri Lanka. It warned that should tariff reductions continue, the CEB might have to slash capital expenditures to meet its debt obligations.
The restructuring plan includes shifting a substantial portion of CEB’s debt to the company responsible for hydropower. This decision is part of the new electricity reforms aimed at keeping hydropower under government control, without opening it to private investments. Critics argue that this move could undermine the financial health of the hydropower sector, which has been a cornerstone of Sri Lanka’s energy stability.
The Power and Energy Ministry, in collaboration with the Treasury, has directed CEB to develop a plan to manage its existing debt. Yet, the precise details of how the debt will be allocated remain unclear. The restructuring strategy is supported by Section 18(3)(b) of the Sri Lanka Electricity Act No.36 of 2024, which stipulates that the financial liabilities of CEB will be distributed among its successor companies, with the hydropower unit bearing a significant portion of these obligations.
The act outlines the formation of several new entities, including a Treasury-owned company for hydropower, another for coal plants, and separate units for thermal and wind power, all operating under the Companies Act No.7 of 2007. This structure is designed to maintain government oversight through significant Treasury ownership.
While the CEB has reported a turnaround in its financial performance with a profit of 61.2 billion rupees for the fiscal year ending December 2023, following a loss of 298 billion rupees in the previous year, its rising fuel and thermal generation costs continue to pose challenges. Critics argue that the debt allocation to the hydropower unit jeopardizes one of the country’s most sustainable and cost-effective energy sources.
Amid the ongoing restructuring debate, concerns have also been raised about the lack of transparency and public involvement in the decision-making process. Questions are mounting over whether short-term financial relief is being prioritized over the long-term stability of Sri Lanka’s energy sector.
This restructuring plan has led to fears that once the sector opens to private investment, electricity tariffs will inevitably rise, as investors prioritize profitability over national energy responsibilities. Critics argue that if the restructuring goes ahead as proposed, it could place a disproportionate financial burden on the public and jeopardize the country’s long-term energy affordability and stability.
