Sri Lanka’s PPP, SOE reforms ambitious and transformative - Deloitte

• Foreign investors typically deploy minimum $ 50-100 m per project, meaning SL must structure PPPs at that scale to attract global pension funds, sovereign investors, and Middle Eastern capital
• Exchange rate risk remains core concern after sharp rupee depreciation during the economic crisis, which eroded dollar returns and continues to influence investor underwriting of long-term assets
• India’s public-sector reforms show the fiscal upside of credible restructuring: over 300 SOEs, many listed, now generate profit pool rivalling private sector, with mandatory dividend payouts of at least 2% of net worth annually, a benchmark investors will compare Sri Lanka against
• Global infrastructure investors will judge Sri Lanka’s readiness by the quality of the first wave of PPP projects, where proper feasibility studies, risk allocation, and deliverables will determine whether private capital crowds in or waits on the side lines

From left: Deloitte Sri Lanka and Maldives Commercial DD, Valuation and Modelling Leader Lasanga Abeysuriya; Head of Strategy, Risk and Transactions Advisory Services Ruvini Fernando; Deloitte India Partner - Strategy, Risk and Transactions, National Leader - Infrastructure and Capital Projects, and Head - Restructuring, Financial and Strategic Solutions, Manish Aggarwal; Partner - Strategy, Risk and Transactions Hitesh Sachdeva; and Deloitte Sri Lanka Associate Director - Strategy, Risk and Transactions Samalka Athuraliya

Sri Lanka’s draft law on public-private partnerships (PPPs) and the restructuring of state-owned enterprises (SOEs), led by the unbundling of the Ceylon Electricity Board (CEB), represent ambitious reforms that could transform the role of private capital in infrastructure and capital projects sector, Deloitte partners said in Colombo.

However, they cautioned that credibility with investors will depend on stable macroeconomic conditions, regulatory clarity, and the quality of preparation of early projects.

Deloitte Sri Lanka and Maldives Head of Strategy, Risk and Transactions Advisory Services Ruvini Fernando said the proposed PPP law gives a permanence and stability that had been missing. “Sri Lanka has attempted PPPs before, some successfully and some not. But now that we have a law, it will be more formalised and become part of the national policy framework,” she said.

She argued that private capital is necessary given fiscal limits. “PPPs are one way of crowding in private investment. Capital markets are another avenue, and foreign direct investment should supplement what is available domestically. Public finances must focus on essential services such as education and health, so capital expenditure for infrastructure will increasingly depend on private participation,” Fernando said.

Deloitte Sri Lanka and Maldives Commercial DD, Valuation and Modelling Leader Lasanga Abeysuriya said the first projects launched under the law will shape investor sentiment. “If projects are prepared with clear feasibility studies, proper risk allocation, and defined deliverables, that will attract serious investors. Execution of the first wave is crucial for credibility,” he said.

Deloitte India Partner - Strategy, Risk and Transactions and National Leader - Infrastructure and Capital Projects Head - Restructuring, Financial and Strategic Solutions Manish Aggarwal underlined that transparency, structural reforms, and policy stability form the foundation of investor confidence. “Private capital is long-term. Investors want clarity that the policy framework is stable, that the reforms are not one-off, and that governance is improving,” he said.

Aggarwal pointed to the role of domestic finance in catalysing foreign capital. “In India, domestic banks and institutions always led before foreign debt markets opened up. Bank consolidation and cleaning up non-performing loans created the balance sheets to fund large infrastructure projects. That is critical in Sri Lanka too,” he said.

He added that exchange-rate risk remains a central concern. “Investors saw their dollar returns erode during the crisis when the rupee depreciated sharply. Currency stability would be key for investors to underwrite long term investments in the country” Aggarwal said.

Deloitte India Partner - Strategy, Risk and Transactions Hitesh Sachdeva said appetite exists among Asian, Middle Eastern and global pension investors, but Sri Lanka must ensure viable scale. “Foreign capital typically comes at minimum ticket sizes of $ 50 to 100 million. If forward-looking planning enables that scale, capital will follow. Energy transition, airports, ports, logistics, and tourism are all well suited for PPPs in Sri Lanka,” he said.

Sachdeva also emphasised early focus on user-pay sectors. “Where the user is willing to pay, such as renewables, electric mobility charging, toll roads, and airports, PPP models work better. If Sri Lanka prioritises these sectors with viable PPP structures, there would be significant interest from strategic and financial investors” he said.

Deloitte Sri Lanka Associate Director - Strategy, Risk and Transactions Samalka Athuraliya added: “Developing a healthy pipeline of projects is also important, as it not only helps the Government allocate resources more efficiently, but also provides visibility to investors on upcoming opportunities and sends a positive signal that the Government is committed to driving PPPs.”

On SOEs, Deloitte partners agreed that the CEB restructuring is the most ambitious initiative underway. “This is something Sri Lanka has never attempted before,” Fernando said. “By unbundling, creating new entities, shifting staff into them and having well governed finances, the CEB could become a self-financing, sustainable institution able to raise capital for renewable power, grid modernisation and efficient power sector.”

The goal, she added, is viable, robust, and effective state institutions. “Reforms must create entities that can invest, perform services reliably and cost effectively, and deliver quality services for citizens. That is how you transform the public sector and create value for citizens,” she said.

Abeysuriya noted that Deloitte’s team possesses extensive experience in facilitating public–private collaboration initiatives, having partnered with Government institutions, private sector leaders, and multilateral agencies. He observed that while there has been strong commitment towards advancing landmark partnership projects, a range of factors have constrained the achievement of desired outcomes.

India’s approach to SOE and financial reforms offers lessons, Deloitte partners said. Sachdeva pointed out that India avoided mass privatisation. “We have about 300 public sector enterprises. Majority have been listed on stock markets. We tied management and director compensation to performance agreements with the Government. Independent directors improved governance. Each SOE signs annual memoranda of understanding, which are made public and monitored,” he said.

He noted that the results have been significant. “The profit pool of public sector enterprises in India is now rivalling the private sector. They contribute to the budget through dividends and divestments, with a requirement that at least 2 percent of net worth be distributed annually. Properly run, these are profit-generating entities, and instruments of national wealth creation,” Sachdeva said.

Aggarwal pointed to the Insolvency and Bankruptcy Code as another turning point. “Our banking system was paralysed by non-performing loans. By forcing the largest defaulting borrowers into the insolvency process, the Reserve Bank of India sent a clear message that borrower discipline mattered. That unlocked credit flows and attracted billions of dollars in private debt capital. Reforms like this, even if politically difficult, can change investor perceptions permanently,” he said.

He added that India also learned from PPP failures. “We modified frameworks, built a national monetisation pipeline, and mapped out multi-year investment opportunities so investors could plan scaled up commitments. Reforms are rarely linear. Some succeed, some face resistance, but consistency and follow-through matter,” Aggarwal said.

While Sri Lanka’s PPP and SOE reforms may appear modest when compared with India’s, Deloitte partners argued they are ambitious in context. “Ambition is relative,” Aggarwal said. “For Sri Lanka, codifying PPPs and pushing SOE reform is ambitious. What matters now is project preparation, feasibility, and delivery.”

Fernando agreed that credibility will build gradually. “Domestic confidence must come first. If Sri Lanka shows that these reforms can deliver stable institutions and sustainable projects, foreign investors will follow,” she said.