Sri Lanka’s Parliament has passed an amendment to the country’s new electricity law, aiming to restructure the power sector in alignment with plans supported by multilateral lenders. The reform is expected to attract private investment while maintaining certain components under full government ownership, according to Energy Minister Kumara Jayakody.
Jayakody stated that while the National People’s Power administration had a pre-election plan for the sector, eight months of deliberations led to some compromises. However, the government upheld certain positions due to what he described as a “covenant with the people.”
He criticized past decisions that led to the abandonment of low-cost, long-term generation plans by the Ceylon Electricity Board (CEB), which resulted in the adoption of expensive, liquid-fuel-based power plants, including gas turbines in the 1990s. He also pointed to political and environmental opposition that delayed or blocked projects like the Upper Kotmale hydro plant and coal power during favorable periods.
Jayakody noted that the CEB once operated a fully renewable and low-cost power system, but increasing resistance to cost-effective energy sources has shifted the landscape. Environmental concerns also led to design changes in projects like the Kukule Ganga hydro plant, reducing its efficiency.
Concerns Over Governance and Financial Risks
Opposition MP Kabir Hashim expressed concern about a new advisory committee that will now be appointed solely by the Energy Minister, replacing the previous cabinet-appointed council. He argued that this change reduces accountability and contradicts earlier proposals for appointments via the Constitutional Council.
Hashim also questioned the replacement of the “least cost dispatch” principle with “security constrained economic dispatch,” a term left undefined except for a reference to its U.S. origin.
The CEB’s unbundling plan has also changed. Instead of multiple entities, it will now be split into four units: a single distribution company, a transmission company, a system operator, and another support entity. Deputy Ports Minister Janith Ruwan Kodithuwakku said future distribution companies may operate competitively and independently of geographical boundaries.
Financing and Multilateral Support in Jeopardy
Concerns were also raised about the impact of these changes on financing. The previous electricity reform model, introduced under former Energy Minister Kanchana Wijesekera, was considered “bankable” by international lenders. Opposition MP Harsha de Silva warned that revisions to this model could threaten future funding, pointing to a letter from multilateral lenders, including the Asian Development Bank (ADB), expressing concern over the deviations from the agreed policy framework.
De Silva criticized the influence of a single advisor, Pubudu Niroshan, and emphasized the dire financial needs of the transmission company, which only earns about $75 million annually but requires several billion dollars in investment.
When questioned about funding, the government mentioned potential support from China’s Asian Infrastructure Investment Bank (AIIB). However, de Silva noted that AIIB loans require Treasury guarantees, which are limited due to new fiscal rules after Sri Lanka’s sovereign default. He estimated such loans could cost around 11% annually due to a 4.8% risk premium.
Renewables and Cost Concerns
Minister Kodithuwakku added that while the government retains ownership of grid infrastructure, there is potential for privately financed subsidiaries. However, he cautioned that high-cost generation — including some non-conventional renewables like solar — is being pushed by various parties, sometimes at prices above global market rates.
There is uncertainty about whether the pressure to accept expensive renewables is driven by the lack of commercial incentives in the current single-buyer system, unlike vertically integrated utilities such as Tata Power in India, which naturally selects the cheapest power sources.
Finally, CEB unions have historically resisted political pressure to approve take-or-pay LNG contracts, which further strained the utility’s cost structure.
