Sri Lanka to end arbitrary energy pricing
COLOMBO (EconomyNext) – Sri Lanka will end arbitrary pricing of power by allowing the regulator to do its job, ending political decision-making, which will ensure economic justice, Deputy Economic Policy Minister Harsha de Silva said.
"The revision of power tariffs have always been a political decision," Deputy Minister de Silva told reporters.
"So what we are saying is that the adjustment of power tariffs should not be a political decision. It must be a decision based on the cost of production."
He said the Public Utilities Commission of Sri Lanka (PUCSL) is empowered to change power tariffs every six months, but it has not happened.
"What has happened is that stated mandate has not been implemented."
The next power tariff revision is set for June 2015.
The value of a regular cost-based pricing is most shown not when oil prices fall, but it is more important when oil prices rise, as losses in energy utilities which are financed by the banking system tends to depreciate the rupee and push overall prices in the country up.
Low inflation and a strong currency is the best protection or ‘social safety net’ for the poor.
Sri Lanka’s rulers since independence from British rule have printed money to give deceptive subsidies including salary increments to state workers and depreciated the currency and made everyone poor, including the state workers themselves.
In 2011 because the PUCSL did not change power tariffs, Sri Lanka went into a balance of payment crisis and the rupee fell from 110 to 130 to the US dollar. The decision not to change power tariffs was announced in the November 2011 budget.
The resulting economic downturn and higher prices also helped oust the Mahinda Rajapaksa administration.
Analysts say the discretion should be take away to end arbitrary pricing, making quarterly price adjustments mandatory.
When the rupee falls, power tariffs have to rise beyond the level it would have with a stronger currency because a weaker currency pushes up the rupee cost of imports higher than the actual global rise.
In Singapore the Energy Management Authority changes gas, water and power tariffs every three months.
In Sri Lanka gas pricing is done by the Consumer Affairs Authority, which critics say had earlier set prices based on nationalism and cronyism giving higher margins to one firm than the other.
It later ended monthly pricing allowed high prices to remain as costs fell, after the state acquired the larger firm.
Frequent changes in power tariffs keeps also prevent export industries asking for devaluation because they quickly get hit with higher utility prices.
In Sri Lanka in addition to getting cheaper labour (lower dollar salaries that impoverish the workforce) export industries also benefit from fixed utility costs when the currency depreciates.
Energy Minister Patali Ranawaka has said fuel pricing will be set by a formula and electricity prices will be revised in June. The new administration slashed fuel prices. The Rajapaksa regime also cut fuel prices, shortly before the election.
"You can’t adjust fuel prices, you can’t adjust electricity prices just because of the elections calendar," de Silva said. "It has to be based on something else.
"The politics of fuel pricing, the politics of electricity pricing, the politics of gas pricing, must stop. It must be based on the realities on the ground.