Unnecessary turf battle on electricity tariff hike

The President issued an extraordinary gazette notification this week declaring the supply and distribution of electricity and petroleum products, and all services related to the health sector as essential services, once again. The move comes amid a proposal by Minister of Power and Energy Kanchana Wijesekera to revise electricity tariffs.

The proposal made to the cabinet last week was deferred for decision when it came up for discussion. The proposals for a hike in tariffs has opened an internal battle within the Government with the Public Utilities Commission of Sri Lanka (PUCSL) strongly objecting to the proposed tariff hike. PUCSL Chairman Janaka Ratnayake has insisted that the regulator is not bound to follow any Cabinet directive instructing it to approve the Ceylon Electricity Board’s request for a tariff hike.

A few months ago, the CEB tariff was increased for all consumers. The average increase was approximately 75%. The Minister of Power and Energy has recently stated that there needs to be a further large increase in tariff in January, around 65%, if the CEB is to provide continuous power to the public. Without the increase, he says, there is likely to be eight-hour power cuts. Since the last electricity tariff hike in August, the Power and Energy Ministry has justified the proposal for another tariff hike on the grounds that even at the current tariff level, the CEB will still incur a loss of approximately Rs. 287 billion in 2023. The hike is also necessary if the CEB is to provide power, in 2023, without imposing power cuts, according to the proposal.

It is clear that loss-making state sector giants such as the CEB contributed significantly to the collapse of the economy in 2022. Years of structural problems have led to this situation. An inefficient state sector monopoly with rampant corruption has run into billions of rupees in debt. In the short term there are only two options available to address this situation; either the losses have to be passed down to the consumer or need to be absorbed by the Treasury. Neither is a good option nor a popular one. Yet, continuing as if there is no problem would not serve any purpose either.

The Treasury cannot incur further burdens as Sri Lanka deals with bankruptcy. State sector expenditure needs to be reduced and done so immediately. The increase in tariffs would be more palatable to the consumer if done in a transparent manner which demonstrates that corruption and misappropriation with the sector is addressed and there is a clear path towards long term reforms.

Recently a Cabinet-Appointed Committee on Power Sector Reform recommended the division of the Ceylon Electricity Board into 14 companies which are to take over the businesses of generation, transmission, distribution, and sale of electricity. The restructuring is expected to attract significant investments into the energy sector and replace the current monopoly held by the CEB. As with many previous attempts at restructuring debt-riddled public enterprises, there is no doubt there would be significant resistance from interested parties. However, experience in the last 30 years has proven that reforming loss-making public-sector enterprises, despite their unpopularity at first, yields significant results in the long term.

The restructuring of the CEB, if done properly in a transparent manner, will set a precedent for many other such loss-making SOEs which need reform immediately. It is imperative that the Government get this process right without the usual corruption and deal-making that can destroy confidence in these reforms.