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Saturday June 3rd, 2023

Sri Lanka free trade zone manufacturers alarmed by electricity tariff hike

ECONOMYNEXT –  Sri Lanka’s “alarming” and “unprecedented” decision to raise electricity tariffs could have disastrous consequences on export businesses, the Free Trade Zone Manufacturers’ Association (FTZMA)  said.

In a letter to Power & Energy Minister Kanchana WIjesekara on Friday August 10, the FTZMA said the high tariffs which are driving up cost of production would make Sri Lankan products highly uncompetitive in the global market, driving away foreign investment at a time the country is dealing with a debilitating forex crisis.

“We urge you to revisit and reanalyse the price structure once again [bearing in mind] that that foreign direct investors are the future lifeline and backbone of our country’s economy,” the letter said.

The Public Utilities Commission of Sri Lanka (PUCSL) has said that prior to the revision, the average revenue from the Industry category was 4.6 US cents per kiloWatthour (kWh) and the proposed increase would only increase revenue to 8.6 US cents per kiloWatthour.

The PUCSL has also asked that users who generate over 60 percent of revenue by forex would have to pay electricity bills in dollars, and would be given a 1.5 percent discount on their bills.

Chairman of the FTZMA, Dhammika Fernando said the dollar benefit would not be passed down to manufacturers, as rupee costs were increasing rapidly.

The PUCSL and the Ceylon Electricity Board (CEB) has for some time been calling for price hikes, as the previous hike was in 2013. Tariffs were decreased by 25 percent in 2014.

The CEB has been running on losses due to several reasons, inefficient and overpaid staff and selling at subsidised rates, according to Wijesekara.

The PUCSL has argued that it may not be prudent to wait for a revision, as it could further deteriorate the financial position of the Utilities.

The revenue requirement for the CEB to cover estimated costs in 2022 is 505 billion rupees excluding Lanka Electricity Company (LECO) costs. The hiked tariffs will bring in an estimated revenue of 512 billion rupees including LECO sales. Covering costs would require an 82.4% increase in revenue, but even with hikes the estimated revenue is at 79 percent.

Out of 7.8 million electricity consumers, 4.8 million domestic consumers are being given subsidised rates, even with the price hikes, the PUCSL said.

These subsidies are recovered in part by increasing the day rate given to Bulk Consumers in the Industry category.

The FTZMA  said that the approved hikes by PUCSL were unreasonable when compared to the CEB requested rates.

The CEB had requested an average of 78 percent increased rates for the Industry (IP1) sector, while the PUCSL has approved an overall increase of 91 percent.

IP2 had a proposed increase of 78 percent and the approved increase is 117 percent.

IP3 had a proposed increase of 56 percent and the approved increase is 118 percent.

Fernando stated that if costs could not be kept down, small and medium enterprises would have to shut down, and that other businesses would have to increase prices to cover production costs.

Sri Lanka is now in a position where it cannot afford to subsidise and consumers cannot afford to pay up.

The FTZMA has requested a meeting with Wijesekara to discuss the situation.

“It is our fervent hope…to come to an agreement whilst reaching a win win situation…and retaining much needed FDIs.” (Colombo/Aug12/22)

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Sri Lanka to ramp up weekend fuel deliveries after petrol price cut

More deaths reported at Sri Lanka fuel queues

ECONOMYNEXT – Sri Lanka’s state-run Ceylon Petroleum Corporation will be operating on the weekend to complete all fuel deliveries to end vehicle queues forming outside fuel stations after the price revision earlier in the week, Energy Minister Kanchana Wijesekera said.

“Instructions have been given to CPC and Ceylon Petroleum Storage Terminals to continue fuel deliveries on Saturday and Sunday this week to supply sufficient stocks to all fuel stations,” Minister Wijesekera said in a TWITTER.COM MESSAGE

“To reduce expenses on overtime, CPC and CPSTL have not been operating on Sundays and public holidays in the last 4 months,” Wijesekera said.

“Non-placement of orders by fuel stations from last Saturday, anticipating a price reduction, not maintaining minimum stocks, immediate increase in demand by consumers after the price revision, and quota increase have created shortages in the fuel stations.”

The Minister in April 2023 said all fuel stations would be required to maintain a minimum of 50 percent of stock tank capacity.

“I have asked CPC to review and suspend the license of fuel stations that had not maintained minimum stocks.” (Colombo/ June 02/ 2023)

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Sri Lanka bonds yield up at close, rupee at 291.75/292.50 against the US dollar

ECONOMYNEXT – Sri Lanka’s bonds closed steady on Friday, dealers said, following the central bank’s decision to cut its main policy rate by 250 basis points.

The Spot US dollar closed at 291.75/292.50 rupees, dealers said.

The rupee opened at 290.25/75 to the US dollar Thursday and closed at 292.50/295.50 to the US dollar.

A bond maturing on 15.09.2027 closed at 24.70/90 percent up from 24.50/90 percent a day earlier, dealers said.

A bond maturing on 15.05.2026 closed at 25.75/26.25 percent up from 25.00/26.00 percent a day earlier.

A bond maturing on 01.05.2025 closed at 27.00/30 percent, up from 26.30/27.00 per cent at last close.

A bond maturing on 01.07.2032 closed at 20.25/21.00 percent, up from 20.00/40 per cent at last close.
(Colombo/ June 02/2023)

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Sri Lanka’s shares edge up on positive macroeconomic sentiments

ECONOMYNEXT – Sri Lanka’s shares closed higher in trade on Friday, over positive macro-sentiments encouraging investors to redeem their interest towards buying, an analyst said.

The main All Share Price Index was up 0.72 percent or 62.19 points to 8,753.80,  while the most liquid index S&P SL20 was up 0.68 percent or 16.87 points to 2,487.29.

Sri Lanka’s inflation in the 12-months to May 2023 has eased to 25.2 percent from 35.3 percent a month earlier according to a revised Colombo Consumer Price Index calculated by the state statistics office.

Prior to the Monetary Policy investors were quite optimistic that inflation is to lower and interest rates will decrease and since exp, an analyst said.

Sri Lanka Central Bank is waiting for the government proposal on the domestic debt restructuring (DDR), the central bank governor Nandalal Weerasinghe said amid uncertainty over DDR and speculations over instability in the banking sector.

“On debt restructuring, the borrower is the ministry of finance’s treasury. Certainly we will announce what the strategy will be. We are waiting for a government proposal,” Weerasinghe said.

Sri Lanka’s investors are waiting on assurances to be made on debt restructuring and optimization, Central Bank Governor Nandalal Weerasinghe said, “It is up to the government to clear the uncertainty, because from our side we have done that part.”

The central bank cut the key policy rates by 250 basis points to spur a faltering economic growth as inflation was decelerating faster than it projected.

The speculation of DDR has hit the market and the risk premium has kept the market lending rates well above the central bank’s policy rates. The government has yet to present its plans on DDR.

Weerasinghe said the central bank has done its best to reduce the risk premium through bringing down the market lending rates while keeping the policy rates unchanged.

Sri Lanka’s President Ranil Wickremesinghe has discussed progress of International Monetary Fund program and debt restructuring during a visit of Deputy Managing Director Kenji Okamura, statement said.

“The discussion primarily focused on the progress of the IMF program between Sri Lanka and the IMF,” a statement from President’s office said.

“Attention was also paid to the on-going debt restructuring negotiations.”

However Officials from IMF have said Sri Lanka has to focus on expanding taxes.

“We discussed the importance of fiscal measures, in particular revenue measures, for a return to macroeconomic stability,” Deputy Managing Director Kenji Okamura said in a statement.

The finance ministry this week issued rules requiring everyone above 18 year of age to register to pay income tax.

“I was encouraged by the authorities’ commitment to negotiate a debt strategy in a timely and transparent manner.

The market generated a revenue of 738 million rupees, while the daily average was 1 billion rupees.

Top gainers in trade were Vallibel One, LOLC Finance and Browns Investment. (Colombo/June02/2023)

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