Govt. clarifies electricity pricing amid IMF reforms

Labour Minister and Economic Development Deputy Minister Dr. Anil Jayantha Fernando 

•  Reaffirms commitment to cost-reflective electricity tariffs, aligning with key IMF structural benchmark
• Deputy Ministers Dr. Anil Jayantha Fernando and Dr. Harshana Suriyapperuma clarify Govt.’s focus on long-term reform and institutional sustainability
• Assert cost-reflective formula already agreed upon, but quarterly implementation faces data and timing challenges
• Aim to avoid short-term borrowing and preserve cleaned-up CEB balance sheet
• Emphasise PUCSL’s independence with no Govt. interference in tariff decisions
• IMF Mission Chief for SL Evan Papageorgiou acknowledges pricing mechanism is not functioning fully, calling for prior actions to ensure cost coverage

The Government yesterday reaffirmed its firm commitment to cost-reflective electricity tariffs, a key structural benchmark under the International Monetary Fund (IMF) program. 

Addressing the media Labour Minister and Economic Development Deputy Minister Dr. Anil Jayantha Fernando and Finance and Planning Deputy Minister Dr. Harshana Suriyapperuma clarified that Sri Lanka is not only complying with IMF requirements, but also reshaping institutions and policies for long-term sustainability. 

Dr. Fernando explained that while a cost-reflective formula has already been agreed upon, its full implementation has lagged. 

“We have already agreed to the initial structural benchmark. But this is not a one-off. It is a continuous benchmark, reviewed every quarter. Electricity is generated from various sources and the cost of each varies depending on weather patterns. We use a formula that adjusts based on past profits and future estimates, but applying it quarterly as agreed has proven challenging—especially to collect and forecast data,” he added. 

The formula, Dr. Fernando explained adjusts based on projected power generation and past profits. Although the Government would prefer a longer data period—ideally a year, he said current requirements limit reviews to quarterly intervals. That means electricity tariffs may change every three months, depending on audited data. 

“Changing something like electricity bills monthly or quarterly affects production costs directly. That is why data accuracy is critical,” he justified.

In January 2025, Public Utilities Commission of Sri Lanka (PUCSL) approved electricity tariffs to be reduced by 20%, and the next adjustment was scheduled for April. However, the data submission by the Ceylon Electricity Board (CEB) needed additional time to submit it to the PUCSL for reviewing and auditing those forecasts. 

Dr. Fernando said the Government informed the IMF mission who visited the country in early April that more time was needed. 

“The April update was not missed due to negligence, it was a timing issue and when the Government explained the IMF agreed. What the IMF notes is that April’s adjustment was not implemented—and not that it won’t happen,” he stressed, adding that the media has misinterpreted it out of proportion.

The Deputy Minister explained that the IMF is insisting on it because if CEB’s short-term borrowing rises due to delayed tariff adjustments, it could strain the hard-won system again. 

“The CEB balance sheet has been cleaned up now. We want to avoid unnecessary borrowing. If losses exceed Rs. 15 billion, we have to adjust tariffs within two weeks. And this hasn’t happened yet, because the losses haven’t crossed that mark,” he assured.

Dr. Fernando pointed to the IMF press release which confirmed a strong progress in the program. 

Joining the conversation, Dr. Suriyapperuma provided context describing the April discussions with IMF officials as both productive and successful. 

He said Sri Lanka’s proactive engagement and structured approach were recognised by the IMF team. Limited data availability had initially delayed some of the review, but ongoing discussions in Washington helped move the process forward.

“We covered many areas; governance, transparency and the crucial electricity tariff issue. Everyone understood the importance of letting the independent regulator—the PUCSL, make the decisions, not the Government,” he added. 

He reiterated that the goal is to prevent a return to the days when CEB ran chronic losses, stating that regular data submissions and timely reviews by PUCSL are now at the heart of the strategy. 

“If the system works as intended, Sri Lanka is on track to receive the next tranche of IMF funds. We are hopeful and confident,” he said.

Dr. Suriyapperuma stressed that the electricity regulator, PUCSL must remain independent. “Their decisions must be based on real data. The Government does not intervene. That message was clearly communicated,” he added. 

On Tuesday (29) IMF Mission Chief for Sri Lanka Evan Papageorgiou confirmed this in a virtual briefing. “Electricity pricing and reliability have long been issues in Sri Lanka. The current tariffs still don’t cover the full cost—generation, transmission and distribution. The automatic pricing mechanism isn’t working as intended,” he said.

To fix it, the IMF is proposing prior actions, suggesting that these would ensure prices reflect true costs and that the mechanism kicks in automatically. IMF fears that without these reforms, the CEB risks falling into debt once again—a Government liability and a burden on taxpayers.

“These reforms are central to the IMF program. Once fully implemented, they will stabilise public finances and make electricity pricing more predictable. In time, that should lead to lower prices and increased investment,” Papageorgiou stressed. 

On 25 April, IMF announced a staff-level agreement on economic policies to conclude the fourth review of the four-year Extended Fund Facility (EFF)-supported program was reached with Sri Lanka enhancing the prospect to receive a fresh $ 334 million in financing, bringing the total to $ 1,722 million since March 2023.

Completion of the review by the IMF’s Executive Board requires: (I) the implementation of prior actions relating to restoring electricity cost-recovery pricing and ensuring proper function of the automatic electricity price adjustment mechanism; and (ii) the completion of financing assurances review, which will focus on confirming multilateral partners’ committed financing contributions and adequate debt restructuring progress.