CEB and CPC now fully adhering to cost reflective pricing policies

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Officials of the Ministry of Finance (MoF) and the Central Bank of Sri Lanka (CBSL) told Finance Today that the implementation of a pricing policy that fully reflects the cost of electricity, fuel, water and gas in Sri Lanka in accordance with the conditions of the International Monetary Fund (IMF)  is a very optimistic trend for the State Budget.

“Implementation of a cost-reflecting price policy for electricity and fuel is a basic condition for reaching   staff-level agreements with the IMF. Now that the Ceylon Petroleum Corporation (CPC) as well as the Ceylon Electricity Board (CEB) have agreed to implement the price policy in practice, it is a very optimistic trend for the State Budget, they said.

The IMF has also proposed that losses and other liabilities of the CEB and the CPC should be absorbed into the State accounts. However, they said that the Government of Sri Lanka has not responded well to the proposal so far.

Chairman of the Public Utilities Commission of Sri Lanka (PUCSL), the regulator of the electricity industry, Janaka Ratnayake said for the first time in Sri Lanka, the CEB  was allowed to adopt a cost-reflective price policy. Accordingly, he stated that a new tariff policy will be implemented from today (10) while minimising subsidies for  needy consumers.

Accordingly, he told a media briefing that electricity tariffs will be increased by 75 per cent with effect from today (10).

It is said that the CEB  has now reached a break-even point , where revenue and total costs are the same, due to the decrease in demand due to current power cuts in the country.

Accordingly, he said that on the basis of the new tariff revisions, the CEB will be able to offset its losses this year and reach a level where it will cover all expenses.

The PUCSL has also imposed several conditions to prevent further burden on electricity consumers by improving the efficiency of the CEB by reducing unnecessary expenses and wastage.

He said in the future, based on the cost of electricity generation, tariff revisions will be made if necessary

Commenting on the new tariff revision, Janaka Ratnayake, said,”During these nine years, prices of all goods and services have increased considerably. Especially, the three types of fossil fuels imported for electricity generation have increased by more than 250 per cent. But in the last nine years, we managed to keep the electricity rates at a stable level. During these nine years, the price of a metric ton of coal has increased from $143 to $321. It is an increase of 550 per cent when calculated according to the value of the rupee. The price of a litre of diesel has increased from Rs 121 to Rs 430. That’s a 255 per cent increase. The price of a litre of furnace oil, which was Rs 90 in 2013 is now Rs 419. It is a 365 per cent price hike. During this period, the value of the dollar has increased by 190 per cent from Rs 127 to Rs 368. Due to this, the cost of generating and distributing a unit of electricity has increased from Rs16 to Rs32. But we managed to keep the electricity rates at a stable level for the last nine years”.

“With the increase in the cost of electricity generation, the CSB had submitted two proposals to the PUCSL to increase tariffs by 183% and 229%. Both these proposals were not approved. I would like to point out that we have taken steps to increase a reasonable tariff rate instead,” he added.

Although it costs Rs 32 to generate a unit of electricity at present, to protect the majority of consumers in the domestic sector, the entire cost burden is not imposed on electricity consumers. The category with consumption less than 30 units will be charged 25 per cent of the cost. They still get 75 per cent of the subsidy.   Consumers coming under the category of using above 31 units and below 60 units are charged 40 per cent of the total cost. They get a 60 per cent subsidy. Only 50 per cent of the actual cost is charged from the category of units above 61 and below 90.  A 50 per cent subsidy is also given to that category.

“Accordingly, I must emphasise that 75 per cent of electricity consumers are still being subsidied even with the new tariff revision. Steps have also been taken to encourage electricity consumers to promote renewable electricity generation with the tariff revision decision. During public consultation on the tariff revision, users of solar systems pointed out that charging a monthly fee on their overall consumption was unfair.  Accordingly, the PUCSL decided that fixed charges should be determined on the basis of net consumption after deducting the amount of electricity units generated from their total consumption. With that decision being implemented, electricity consumers who own solar power systems do not have to pay a monthly fixed fee if they generate electricity more than the consumption,” he said.

By Ishara Gamage