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Tuesday August 16th, 2022

Sri Lanka could face long power cuts, water shortages, Southern grid failures

PARCHED: Hydro reservoirs are down and the bottom is exposed.

ECONOMYNEX T- Sri Lanka could face multi-hour power cuts, blackouts in large parts of the grid and water shortages in Colombo if the current policy of avoiding one hour load shedding at any cost is continued, industry watchers familiar with the ground situation have warned.

Sri Lanka Ceylon Electricity Board has sought permission for around hour power cuts to conserve water in the drought period of February and March after a coal plant outage was compounded by liquid fuel shortages.

Without Samanalawewa the 132kV grid of the CEB which serves the highly populated Southern grid faces serious power deficit. The CEB is also running short of water at Kotmale and Victoria which is used to maintain the frequency of the grid at 50 cycles.

Sri Lanka is facing forex shortages due to money printing which made it difficult to suddenly import extra fuel when the coal plant broke down.

Sri Lanka’s political authorities as well as the regulator have denied permission for one hour planned cuts.

Water Crisis

Avoiding one hour power cuts is leading to further severe depletion of water storage.

Industry analysts say it is no longer practical to continue to run down hydro reservoirs to avoid planned load shedding.

Petroleum Minister Udaya Gammanpila had warned of 3 to 4 hour power cuts from late March.

“What the minister said is correct,” an industry official familiar with the situation said. “This can happen and also water to Ambatale pumping station in the Kelani River will be reduced and Colombo could face water cuts. It will be especially bad if the usual April inter-monsoonal showers are delayed.”

“I do not think the President has been properly made aware of this.”

In order to ensure water supply to Colombo, the Ceylon Electricity Board stores water in the Moussakelle reservoir in the Maskeli Oya and Castlereigh in Kehelgamu Oya, the two largest tributaries in the upper reaches of the Kelani River.

The water is then systematically used during the dry season to generate power, allowing Colombo to be supplied water in March and April until the showers return.

Moussakelle storage has already depleted to around half its capacity and Castlereigh to 30 percent.

Based on the current usage to avoid power cuts at any cost, Castlerigh Reservoir is expected to run dry (minimum operating level) by the end of February. Moussakelle will reach minimum operating level by end March.

With minimal rains, Kelani River water levels will fall to low levels without water from the two reservoirs.

Other reservoirs such as Laxapana and Canyon are small ponds with no storage.

The CEB generally operates a priorty of drinking water first, irrigation second and their own power the third, industry officials said. It has now been turned upside down under in the bid to avoid power cuts at any cost, which is increasingly looking like a gamble with the wrong odds.

However to avoid power cuts, water has been released which would have been better left for farming.

The CEB has also not renewed the ACE Matara and ACE Embilipitiya private plants.

There is also heavy opposition to renewing existing plants in times where there are no emergencies, forcing the CEB to buy power at high prices at the last minute when the bargaining power of the owners are high even if competitive tenders are called.

Perfect Storm

In two other serious complications, water in the Victoria and Kotmale reservoirs which are used to match generation to demand and keep the frequency of the grid at 50 hertz is also running dry.

Samanala Wewa is expected to reach minimum operating level by the second week of March and its use has to be stopped immediately according to industry analysts.

The lack of Samanalawewa, which is complex problem involving the CEBs 220kV and 132kv transmission line interconnections.

Without Samanalawewa the 132kV grid of the CEB which serves the highly populated Southern grid faces serious power deficit.

Most of the larger generators in the CEB system are connected to the 220kV system.

Some of the most expensive plants which are expected to be used only for peaking are connected to the 132kv system.

Overloading of the 132kV system could result in tripping of sections of the grid, tripping of generators including coal power plants which would lead to blackouts in sections of the grid or cascading failures.

The CEB has called tenders and are building interconnection as demand grew, but Covid and other factors have also delayed some projects.

Due to the complexities technicalities of running a national power grid as well as fears of running afoul of authorities, CEB officials are often at a loss to explain to the public exactly what the problem.

The CEB has also got down in infighting amid the New Fortress Energy deal and an internal Power Crisis Committee which usually meets and takes decisions ahead of time in other years has also not met for many months, sources said.

Most of the problems in Sri Lanka’s power sector stems from not building plants planned in the long term generation expansion plan in time, sometime due to political or other opposition as well as tender benders, critics say.

The current situation had long been predicted by analysts and the CEB as soon as the Trico plant was scuttled and the tender for the dual fuel plant was delayed. Power shortages were predicted from 2018 onwards in the dry season.

However the Covid crisis delayed demand growth.


Sri Lanka consumers warned on impending ‘electric shock’ after coal plant scrapping

Sri Lanka faces power shortage with coal plant delay

The forex and fuel shortages have also been predicted due to increasingly discretionary aggressive monetary policy that intensified after the end of a 30-year war. (Colombo/Feb12/2022)

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Sri Lanka sovereign rating at SD but ISBs downgraded to ‘D’ by S&P

ECONOMYNEXT – Sri Lanka’s sovereign rating remains at Selective Default (SD), but the country’s sovereign bonds were downgraded to ‘D’ after missed interest payments, Standard and Poor’s, a rating agency said.

“The Sri Lanka government remains in default on some foreign currency obligations, including international sovereign bonds (ISBs),” the S&P said.

“We do not expect the government to make the payments within 30 calendar days after their due dates.

“We lowered the ratings on the affected bonds to ‘D’, following missed interest payments due on June 3, June 28, and July 18, and a missed principal payment due July 25.”

Sri Lanka is still paying senior creditors with money coming from deferred payments from the Asian Clearing Union.

Sri Lanka started to borrow heavily in foreign bond markets from 2015 after battering its currency peg with extraordinary liquidity injections under ‘flexible inflation targeting and the country lost the ability to roll-over maturing rupee bonds at gross financing level.

From 2015 to 2019, the country had monetary stability only in 2017 and 2019 as the pegged exchange rate regime was shattered with liquidity injections to target an ‘output gap’.

However the targeting the output gap led to currency crises (balance of payment deficit) and growth fell as stabilization measures were slammed.

From 2020 to 2022 even more aggressive liquidity injections were made and taxes were also cut saying there was a ‘persistent output gap’ until all foreign reserves including borrowed reserves were lost and the the country defaulted in peacetime.

The International Monetary Fund gave technical assistance to Sri Lanka to calculate the output gap and also endorsed ‘flexible inflation targeting’, with overnight repo injections, term repo injections, outright purchase of bond, despite having a reserve collecting peg.

On April 12, 2022 Sri Lanka defaulted despite being at peace.

The full statement is reproduced below:

Sri Lanka Bonds Downgraded To ‘D’ After Missed Payments; Sovereign Ratings Affirmed


The Sri Lanka government remains in default on some foreign currency obligations, including international sovereign bonds (ISBs).

We do not expect the government to make the payments within 30 calendar days after their due dates.

We lowered the ratings on the affected bonds to ‘D’, following missed interest payments due on June 3, June 28, and July 18, and a missed principal payment due July 25.

We affirmed our ‘SD/SD’ foreign currency and ‘CCC-/C’ local currency ratings on Sri Lanka. The outlook on the long-term local currency rating is negative.

Rating Action

On Aug. 15, 2022, S&P Global Ratings affirmed its ‘SD’ long-term and ‘SD’ short-term foreign currency sovereign ratings on Sri Lanka. At the same time, we affirmed our ‘CCC-‘ long-term and ‘C’ short-term local currency sovereign ratings. The outlook on the long-term local currency rating remains negative.

In addition, we lowered to ‘D’ from ‘CC’ the issue ratings on the following bonds with missed coupon or principal payments:

US$650 million, 6.125% bonds due June 3, 2025.

US$1.0 billion, 6.825% bonds due July 18, 2026.

US$1.0 billion, 5.875% bonds due July 25, 2022.

US$500 million, 6.35% bonds due June 28, 2024.

Our transfer and convertibility assessment at ‘CC’ is unchanged.


Our foreign currency rating on Sri Lanka is ‘SD’ (selective default). We do not assign outlooks to ‘SD’ ratings because they express a condition and not a forward-looking opinion of default probability.

The negative outlook on the local currency rating reflects the high risk to commercial debt repayments over the next 12 months in the context of Sri Lanka’s economic, external, and fiscal pressures.

Downside scenario

We could lower the local currency ratings if there are indications of nonpayment or restructuring of Sri Lankan rupee-denominated obligations.

Upside scenario

We could revise the outlook to stable or raise the local currency ratings if we perceive that the likelihood of the government’s local currency debt being excluded from any debt restructuring has increased. This could be the case if, for example, the government receives significant donor funding, which gives it some time to implement immediate and transformative reforms.

We would raise our long-term foreign currency sovereign credit rating upon completion of the government’s bond restructuring. The rating would reflect Sri Lanka’s post-restructuring creditworthiness. Our post-restructuring ratings tend to be in the ‘CCC’ or low ‘B’ categories, depending on the sovereign’s new debt structure and capacity to support that debt.


Sri Lanka’s external public debt moratorium prevents payment of interest and principal obligations due on the government’s ISBs. As such, interest payments due June 3, June 28, and July 18 on its ISBs maturing 2024, 2025, and 2026, and the principal payment on its July 25, 2022, ISB, would have been affected. Following the missed payments, and given our expectation that payment will not be made within 30 calendar days of the due date, we have lowered the issue ratings on these bonds to ‘D’ (default).

Overdue payments now include the following bonds:

US$1.0 billion, 5.875% bonds due 2022.

US$1.25 billion, 5.75% bonds due 2023.

US$500 million, 6.35% bonds due 2024.

US$1.5 billion, 6.85% bonds due 2025.

US$650 million, 6.125% bonds due 2025.

US$1.0 billion, 6.825% bonds due 2026.

US$1.5 billion, 6.20% bonds due 2027.

US$1.25 billion, 6.75% bonds due 2028.

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Sri Lanka rupee guidance peg edges up; market sees dull trade in govt securities 

ECONOMYNEXT – Sri Lanka’s rupee guidance peg on interbank spot trading strengthened by seven cents while yields on Treasury bills and bonds remained dull on Monday (15) with only a handful of maturities quoted ahead of the central bank’s monetary policy rates later this week, dealers said.

“There was nothing in the market. It was dull today,” a market dealer said.

The central bank will announce its latest key monetary policy rates on Thursday, August 18.

A bond maturing on 01. 06. 2025 closed at at 27.50/28.50 percent on Monday, slightly down from 27.30/28.30 percent on Friday.

The three-month T-bill closed flat at 26.00/27.00 percent on Monday.

Sri Lanka’s central bank announced a guidance peg for interbank transactions strengthened by 7 cents to 360.92 rupees against the US dollar on Monday from 360.85 rupees.

Data showed that commercial banks offered dollars for telegraphic transfers between 369.70 and 370.00 for small transactions. (Colombo/ Aug 15/2022)

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Sri Lanka stocks rally continues for 12th straight session on political stability hopes 

The main index fell for the 4th consecutive session

ECONOMYNEXT – Sri Lanka stocks gained for the 12th consecutive session on Monday (15) ending at their highest in more than four months pushed by retail shares amid signs of political stability after months of protests, dealers said.

The market generated 5.8 billion rupees in turnover, nearly twice of this year’s average daily turnover of 3.11 billion rupees.

The main All Share Price Index (ASPI) rose 1.82% or 164.04 points to 9,191.52, its highest since March 30. The index has risen 19.6% in the last 12 sessions.

“We are seeing a lot of volatility in the market today due to profit taking in the key shares that gained in the last 11 sessions,” a market analyst said.

“Profit-taking also returned after the CSE (Colombo Stock Exchange) published the last set of June reports that showed some counters having done very while some not so much, therefore, there is a significant reaction for that.”

In the last few sessions, the market was mostly driven by Lanka IOC and the plantation sector.

However, ahead of the fuel price revision, LIOC moved to red.

“There was a bit of profit taking on anticipation of price cuts. However, unless fuel prices are cut sharply, LIOC will continue to move,” the analyst said.

At the start of the month, CPC cut fuel prices by 10 rupees based on the price formula.

Globally, crude oil prices have dropped hence there is strong speculation that fuel prices will be cut further.

Last week, Sri Lanka announced a 75 percent electricity tariff hike.

Investors previously feared the move would drag the market down due to possible higher costs for manufacturing firms.

However, the political stability after four months of protest is seen as the catalyst for the market gain, dealers said.

The government also tabled an interim budget last week, revising the budget presented last year as the country is going through an unprecedented economic crisis amid plans on a four-year IMF loan programme, debt restructuring, fiscal reforms, and dealing with loss-making state-owned enterprises.

Sri Lanka already declared sovereign debt default on April 12 this year and failed to pay its first sovereign debt in May amid a deepening economic crisis which later turned into a political crisis and led to a change in the president, cabinet, and government.

The more liquid S&P SL20 index moved up, closing at 0.82% or 25.28 points stronger at 3,097.30.

Sri Lanka is facing its worst fuel and economic crisis in its post-independence era and the economy is expected to contract 7 percent this year.

The main ASPI gained 18.8 percent in August so far after gaining 5.3 percent in July. It lost 9.3 percent in June, 23 percent in April, and 14.5 percent in March.

The market index has lost 24.8 percent so far this year after being one of the world’s best stock markets with an 80 percent return last year when large volumes of money were printed.

Sri Lanka’s sovereign debt default on April 12 has already led the country to be rated with restricted/selective default rating by rating agencies, which has weighed on investor sentiment.

Net foreign outflow was 117 million rupees on Monday while the total net foreign outflow so far this year is 1.3 billion rupees.

Investors are also concerned over the steep fall of the rupee from 203 to 370 levels so far in 2022.

Ceylinco Insurance which pushed the ASPI, closed 11.9 percent up at 2,143.2 rupees a share. Browns Investment closed 8.5 percent up at 8.9 rupees a share, and John Keells Holdings gained 2.5 percent to 129.7 rupees. (Colombo/Aug15/2022)

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