Subsidy shock

Friday, 1 March 2013 00:01 - - {{hitsCtrl.values.hits}}

Public to pamper CEB with Rs. 124 b subsidy this year

State-owned Ceylon Electricity Board (CEB) is tipped to be pampered by the public to the tune of Rs. 124 billion this year by way of subsidies, a top think tank has warned.

Based on CEB projections, the Pathfinder Foundation estimates that the State power utility, among five monsters once described by Dr. Sarath Amunugama, is likely to make a Rs. 94 billion loss in 2013. This is consequent to the CEB’s estimated cost for the year being Rs. 268 billion, whilst revenue will be only Rs. 174 billion.

Pathfinder’s estimate of the Rs. 124 billion subsidy is by adding Treasury support for the CEB’s project loan repayment, amounting to Rs. 30 billion.

“This colossal loss is to be subsidised by the Treasury through taxes extracted from all citizens including the poorest of the poor,” said Pathfinder, which has called for urgent reforms at both CEB and CPC or further calamity is certain for the nation at large.

The full analysis was published in yesterday’s Daily FT whilst Pathfinder released additional insights yesterday with regard to the overall subsidy the CEB will be enjoying at the expense of the nation.

To better illustrate the impact of the colossal subsidy at the CEB, Pathfinder said that the amount could be used to increase current Samurdhi payments of Rs. 15 billion by eight times or double the education budget of Rs. 62 billion, or increase the health budget of Rs. 93 billion by 30% or even build five more new airports like Mattala.

Pathfinder noted that the authorities are to be commended for taking action to reverse the massive losses incurred by the CPC and CEB (via recent revisions in fuel prices and anticipated adjustments in energy tariffs) which have severely undermined the liquidity position of the State banks and ultimately, the health of the Government’s balance sheet.

While welcoming this, it is important that the authorities now move beyond ad hoc piecemeal measures to more comprehensive reforms that incorporate: 1) broad-basing the power sector by opening it up for new players and creating an environment to ensure a competitive pricing mechanism; 2) unbundling of CEB to help identify specific operational and management aspects for efficiency and productivity improvement; 3) further liberalising petroleum imports, storage, distribution and retailing so that the Ceypetco and IOC duopoly is ended (an internationally-renowned Sri Lankan regulatory expert pronounced that the only thing worse than a monopoly is a duopoly); 4) further fiscal consolidation in the medium-term, to transform Sri Lanka into a low-inflation/low-interest rate/stable exchange rate country and therefore, an internationally competitive economy; and 5) structural reforms that generate productivity-induced increases in income levels to enable the population to absorb more easily the international prices of oil and other goods.

“There are both efficiency (growth/employment) and equity (welfare) considerations for supporting the price increases in fuel and energy with a more ambitious reform package. The adjustment of fuel and energy prices is necessary but is not a sufficient condition for placing the Sri Lankan economy on a long-term accelerated growth path that will also generate higher value employment,” Pathfinder said.

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