IMF unhappy with recent electricity tariff reduction

By Kelum Bandara

The International Monetary Fund (IMF) is unhappy with the recent electricity tariff reduction by the new government because it hampers cost reflective pricing.  
In response to a question raised at a virtual press conference, IMF Senior Mission Chief for Sri Lanka, Peter Breuer said that reduction took place at a time when the cost-reflective pricing was no longer, and it, at least on a forward-looking basis, implied that losses would be run.  
He said the profits and losses depend on many factors including the weather.  
“This is a concern that we have because it could mean that debt starts building up again in the electricity company that could ultimately become a contingent liability for the government. 

This is something that of course Sri Lanka has experienced before and avoiding this and making sure that consumers on average pay for how much it costs to generate and distribute the electricity is an important part of the programme,” he said.  
He said restoration of cost-reflective energy pricing is a key part of what is expected to be seen at the next review.  
“I should say there are some mechanisms that give us hope that this will happen automatically. There’s the bulk supply transaction account which is sort of a mechanism that is supposed to kick in when losses at CEB (Ceylon Electricity Board) become too large, when their cash balances become negative beyond a certain value. Then there’s meant to be an automatic increase in the tariff that would prevent these losses from accumulating,” he said.  
He said that it is important that these mechanisms be allowed to function, and, at the next tariff setting it’s important to ensure that tariffs will once again be set to cover the costs.  
In January 2025, the Public Utilities Commission of Sri Lanka (PUCSL) approved a 20 percent reduction in electricity tariffs for the first six months of the year. The reductions apply to all consumer categories, including households, hotels, industries, and more.