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Thursday December 1st, 2022

Sri Lanka deforestation: Irrigation reservoirs to be built in Sinharaja

Sinharaja forest/Rainforest Protectors Trust

ECONOMYNEXT – The Sri Lankan government is proposing to build reservoirs and an irrigation scheme in the Sinharaja rainforest which is protected as a UNESCO Heritage site and scientists believe contains flora and fauna from the Jurassic period.

The country’s Irrigation Minister Chamal Rajapaksa said Saturday that two irrigation reservoirs would be constructed inside the Sinharaja rainforest to provide clean water to his home district of Hambantota enraging environmentalists.

The news comes as controversy rages around whether the island’s fragile environment has been damaged by rampant deforestation that has taken place since President Gotabaya Rajapaksa took power around one-and-a-half years ago.

The President yesterday hotly denied the allegation that environmental degradation has increased on his watch.

The Irrigation Minister, one of the elder brothers of the President, said that two irrigation tanks each spanning 5-acres will be constructed inside the Sinharaja rainforest.

He made these statements, speaking in Weeraketiya, in the Hambantota District on March 20, 2021, NewsFirst reported.

According to Rajapaksa, the proposed project would move water from Gin and Nilawala rivers to Giruwapattuwa and will provide water to Tangalle, Beliatte, Weeraketiya, Walasmulla, Dambarella and other areas.

Noting that Sinharaja is a protected forest he promised that reforestation would be carried out on a 100-acre land to compensate for the 10-acres lost in the Sinharaja forest on another site.

He proposes rubber cultivation, a monoculture, to increase Sri Lanka’s forest cover adding that income could be generated by contributing to tire production.

Senior Environmental Scientist Hemantha Withanage says the proposal to construct two reservoirs in the Sinharaja Rainforest area will seriously affect the biodiversity of this fragile area even at the smallest level.

Withanage says the creation of two stagnant bodies of water and the planned 22 kms of road that will be built will “change the flow of water in the region.”

This he says will affect aquatic life at the lowest level.

He told EconomyNext that the first time this idea was proposed was in the 1950s to divert the water of the Nilwala and Gin rivers to take water to Hambantota.

The project was revived during the last Rajapaksa regime by Minister Nimal Siripala de Silva and some LKR400 million was passed for it and a contract signed with a Chinese company.

However, the project did not go through at the time and an Environment Impact Assessment was not carried out by the Central Environmental Authority at the time.

“We cannot say what exactly would happen without an environmental impact assessment,” Withanage said.

He added that the original plan seems to have been modified somewhat and the reservoirs have been moved further up the hill to avoid damage to the existing Lankagama area.

He also predicts that a land area of around 15 hectares will be denuded of the forest because of the construction “which is a significant part of the Sinharaja forest.”

Sri Lanka has only 17 per cent of its forest cover remaining. Sinharaja rainforest isn’t unlike the other secondary forests.

According to the United Nations Educational, Scientific and Cultural Organization (UNESCO) which has identified the rainforest as one of the world’s heritage sites, Sinharaja is the island’s last viable area of primary tropical rainforest and the flora found in the forest dates back to the Gondwanaland period.

Gondwanaland is a supercontinent that existed almost 550 million years ago and broke up during the Jurassic period about 180 million years ago.

“The property’s flora is a relic of Gondwanaland and provides an important component to our scientific understanding of continental drift and an outstanding site for the study of the processes of biological evolution,” UNESCO says in its blog.
https://whc.unesco.org/en/list/405/
It records that more than 60% of the trees are endemic and many of them are considered rare.

“There is much endemic wildlife, especially birds, but the reserve is also home to over 50% of Sri Lanka’s endemic species of mammals and butterflies, as well as many kinds of insects, reptiles and rare amphibians.” (Colombo/Mar22/21)

Edited by Arjuna Ranawana

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Sri Lanka electricity losses from overpriced fuel, no tariff hike considered: regulator

ECONOMYNEXT – Sri Lanka’s state-run Ceylon Electricity Board’s high operating costs are partly due to excessive prices paid for fuel and no tariff hike is being considered, Chairman of the Public Utilities Commission of Sri Lanka, Janaka Ratnayake said.

The CEB itself does not buy fuel but depends on state-run Ceylon Petroleum Corporation and Lanka Coal, another state firm to buy fuel. Both firms are periodically caught in procurement scandals.

“They are paying about 385 plus rupees per litre for furnace oil,” Ratnayaka told EconomyNext.

“That is too much. From the global market we can buy it to much lower price. It can be imported below 200 rupees,”

“I ask the government to take the necessary steps to create a system to import furnace oil, like they did for fuel, to be imported at the lower price levels. If that happens, we can go without going for a price hike.”

Sri Lanka’s CEB generally gets furnace oil and residual oil from the domestic refinery and usually do not import furnace oil.

The refinery however is not regularly operating due to inability to get crude amidst the worst currency crisis in the history of the island’s intermediate regime central bank.

Ratnayake had earlier brought to light import costs of the CPC.

Pushing for operations efficiency of the CEB is a role of the regulator. Regulating costs based on global benchmark prices to push for procurement efficiencies is a standard practice. However the PUCSL is not the official regulator of the petroleum sector.

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Sri Lanka power tariff revisions sought in Jan and July: Minister

Power and Energy Minister Kanchana Wijesekera told parliament that cabinet approval was sought to twice yearly tariff hikes in January and July of each year.

No Electricity tariff hikes are being considered yet, Ratnayake said.

Wijesekera blamed the regulator as well as successive administrations for not regularly revising power prices and pushing the sector into crisis.

In Sri Lanka activists had also blocked cheap coal power. (Colombo/Dec01/2022)

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Sri Lanka banks may need more regulatory, accounting forbearance: Coomaraswamy

ECONOMYNEXT – Sri Lanka’s banks may need more regulatory forbearance ex-Central Bank Governor Indrajit Coomaraswamy said as the country imposes stabilization measures after the worst currency crisis since independence.

“We need to look at regulatory forbearance,” Coomaraswamy told a forum organized by CT CLSA Securities, a Colombo based brokerage.

“For CA Sri Lanka to do some more accounting forbearance. They have given some already.”

Sri Lanka’s central bank has given some regulatory loosening in the mark to market losses and also in liquidity ratios.

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Sri Lanka relaxes bank capital rules to cushion bond losses as rates spike

Sri Lanka’s banks are seeing higher levels of bad loans after the latest currency crisis as well as mark-to-market losses, and the impact of dollar sovereign bonds in default.

Sri Lanka’s stage 3 loans were 7.9 percent of total advances (net 8.7) by the end of the second quarter of 2022.

It compares with a 6.6 percent NPL ratio in the first quarter of 2020 as the Coronavirus pandemic started, which also triggered bad loans just as the roots of the current currency crises started.

In a currency crisis, a soft-pegged or reserve collecting (flexible exchange rate) central bank will inject liquidity to either monetize mostly maturing Treasuries from past deficits (in Latin America mainly failure to roll-over sterilization securities) to suppress rates.

When forex shortages begin to emerge from the excess credit, the flexible exchange rate central bank will intervene and sterilize the dollar sales to keep suppressing rates and prevent reserve money from contracting. Both moves allow banks to give credit without deposits, worsening their loan to deposit ratios and blowing a hole in the balance of payments.

When interest rates correct to stabilize the currency crisis and injections end, bad loans pile up. During the Coronavirus crises however economic activity was muted, compared to previous credit cycles and large volume of injected liquidity piled up in the banking system.

Before the twin crises, the central bank had earlier made banks boost capital.

Coomaraswamy who was Central Bank Governor until the beginning of 2020 said the then head of bank supervision A Thassim had insisted that banks comply with the Basle III capital standards as early as possible, when he himself was prepared to give some more time.

As a result, Sri Lanka banks were well capitalized at the start of the crisis, he said.

In the crisis with government finances already weakened, the banks were made to give relief and took the pressure, Coomaraswamy said.

After Sri Lanka default in April and interest rates were normalized to stop the currency crisis, banks were now facing pressure.

CA Sri Lanka, the island’s accounting body had already given some leeway to re-classify trading portfolios of securities to reduce the impact of mark-to-market losses.

In previous currency crisis, the IMF makes the briefly float the currency to establish confidence in the exchange rate after raising rates to curb domestic credit. This time rates were raised after a float failed by a surrender rule.

A successful float leads to early exporter conversions and a resumption of delayed import settlements which leads to a gradual fall of interest rates. Fixes to the budget and utilities also help.

The falling rates help boost capital gains of banks, offsetting some of the loan loss provisions.

This time however though external stability has large been reached, there has been no successful float to convince the market but taxes have been raised and utility prices adjusted to reduce domestic credit.

Lack of clarity over domestic debt re-structuring has also kept rates elevated. But long term rates have now started to ease.

Meanwhile President Ranil Wickremesinghe had already proposed an asset management company to take-over bad loans. (Colombo/Dec01/2022)

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Sri Lanka power cuts expanded on low water levels

ECONOMYNEXT – Due to water level reduction in reservoirs and high usage of fuel in generating electricity was the main reason the Public Utilities Commission has approved power cuts of 2 hours and 20 minutes, Chairman Janaka Rathnayaka said.

Sri Lanka power cuts were two hours earlier. The Ceylon Electricity Board had requested a 3 hour cut which was not granted.

“The reason it was brought to 2 hours and 20 minutes, was the water levels are lowering in reservoirs and we need to maintain a certain water level to generate hydro power,” Rathnayaka told EconomyNext.

“And also we are using more fuel which is costlier, and therefore we had to increase the power cuts period”.

CEB unions had warned of extended power cuts from July unless coal for 2022 was brought before the April monsoon season starts, when ships cannot be unloaded.

Sri Lanka has already secured seven coal shipments which will complete in the next two days, and should work to secure 38 more shipments in order to secure the necessary coals for 2023. (Colombo/ Dec 01/2022)

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