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Saturday May 25th, 2024

Sri Lanka’s CEB seeks interim power tariff hike amid IMF review

LOSS EXPECTATION: CEB expects Rs32bn loss after earlier price cut.

ECONOMYNEXT – Sri Lanka’s Ceylon Electricity Board has sought an interim tariff hike based on lower than forecasted rainfall up to August on which an earlier tariff hike was decided by the regulator, as well as higher costs due to coal plant outages.

The Ceylon Electricity Board in a letter to the regulator said dry weather conditions it had based the last tariff revision now turned out in actual practice and the 4500 GigaWatt hours hydro energy on which a larger tariff cut was made by the regulator was no longer likely even with higher rainfall in the last quarter.

Under a forecast for 3,750 GWh in hydro power, the CEB would make a loss 32.5 billion rupees after other income and 44.58 billion rupees before other income.

Under a worse case scenario for 3,500 GWh the CEB was on track to make a loss of 54.38 billion rupees after other income and 66.46 billion rupees before

The CEB in its letter to the regulator said it had lost 13.7 billion rupees up to July and a 14.3 billion loss was forecast for the month of August alone.

Sri Lanka is making 6 monthly tariff adjustments under an International Monetary Fund agreement to reduce state enterprise losses.

In the context where the central bank prints money to maintain fixed policy rate, CEB losses which drive up domestic credit tends result in inflationary open market operations and reserve losses if the central bank does not allow rates to go up.

“Building on the Central Bank of Sri Lanka’s success in controlling inflation, refraining from monetary financing will help keep inflation in check,” the IMF said at the conclusion of a review mission which did not result in an immediate staff level agreement.

“Other challenges include maintaining cost recovery in electricity pricing.”

The Public Utilities Commission said “Cabinet of ministers has conveyed the decision of the Cabinet to the Public Utilities Commission of Sri Lanka (PUCSL), among other things to, “urgently consider the submission by CEB based on the cost reflective tariff methodology” and to advance “the tariff revision scheduled for January 2024 to October 2023 to recover all costs.”

Reduction in coal power, due to outages as well as a recovery in demand had increased liquid fuel generation.

CEB said while rainfall was projected to be higher in the last quarter, it also had to re-build hydro storage to at least 850 GWh by the end of the year, which it had run down up to August by using other sources.

According to meteorologists 2023/2034 are El Nino years, where Sri Lanka gets extra rain in the latter part of the year helping in paddy production but the first quarter tends to extra dry which can hit the power sector.

The CEB has continued to seek higher tariffs for households above that of hotels and industry along the lines the Public Utilities Commission had approved earlier.

Sri Lanka has highly interventionist and discriminatory pricing based on the type of user and not just time of day, and there is no uniform tariff unlike in better managed countries like Singapore.

Singapore also revises tariffs more regularly, which reduces forecast errors.

Singapore also does not have a fixed policy rate, which leads to currency depreciation when the monetary authority prints money to cut rates as in Sri Lanka, leading to energy enterprise losses, inflation, social unrest and reformist government being booted out, critics have said.

The CEB has given the regulator lines of options to raise tariffs as a 22 percent surcharge, with an energy charge hike or a mix of fixed charge.

Under a mixed system, the household tariff above 181 will go to 83 rupees.

Under a 22 percent increase the household tariff above 181 units rising 91.5 rupees a unit from the current 75.

(Colombo/Sept29/2023)

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  1. Kadija says:

    Why all these tariff hike explanations blaming the weather etc. You idiots have no idea how to manage energy. How to manipulate natural resources. Only thing you know is price hikes.

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  1. Kadija says:

    Why all these tariff hike explanations blaming the weather etc. You idiots have no idea how to manage energy. How to manipulate natural resources. Only thing you know is price hikes.

Sri Lanka to find investors by ‘competitive system’ after revoking plantations privatizations

ECONOMYNEXT – Sri Lanka will revoke the privatization of plantation companies that do not pay government dictated wages, by cancelling land leases and find new investors under a ‘competitive system’, State Minister for Finance Ranjith Siyambalapitiya has said.

Sri Lanka privatized the ownership of 22 plantations companies in the 1990s through long term leases after initially giving only management to private firms.

Management companies that made profits (mostly those with more rubber) were given the firms under a valuation and those that made losses (mostly ones with more tea) were sold on the stock market.

The privatized firms then made annual lease payments and paid taxes when profits were made.

In 2024 the government decreed a wage hike announced a mandated wage after President Ranil Wickremesinghe made the announcement in the presence of several politicians representing plantations workers.

The land leases of privatized plantations, which do not pay the mandated wages would be cancelled, Minister Siyambalapitiya was quoted as saying at a ceremony in Deraniyagala.

The re-expropriated plantations would be given to new investors through “special transparency”

The new ‘privatization’ will be done in a ‘competitive process’ taking into account export orientation, worker welfare, infrastructure, new technology, Minister Siyambalapitiya said.

It is not clear whether paying government-dictated wages was a clause in the privatization agreement.

Then President J R Jayewardene put constitutional guarantee against expropriation as the original nationalization of foreign and domestic owned companies were blamed for Sri Lanka becoming a backward nation after getting independence with indicators ‘only behind Japan’ according to many commentators.

However, in 2011 a series of companies were expropriation without recourse to judicial review, again delivering a blow to the country’s investment framework.

Ironically plantations that were privatized in the 1990s were in the original wave of nationalizations.

Minister Bandula Gunawardana said the cabinet approval had been given to set up a committee to examine wage and cancel the leases of plantations that were unable to pay the dictated wages.

Related

Sri Lanka state interference in plantation wages escalates into land grab threat

From the time the firms were privatized unions and the companies had bargained through collective agreements, striking in some cases as macro-economists printed money and triggered high inflation.

Under President Gotabaya, mandating wages through gazettes began in January 2020, and the wage bargaining process was put aside.

Sri Lanka’s macro-economists advising President Rajapaksa the printed money and triggered a collapse of the rupee from 184 to 370 to the US dollar from 2020 to 2020 in the course of targeting ‘potential output’ which was taught by the International Monetary Fund.

In 2024, the current central bank governor had allowed the exchange rate to appreciate to 300 to the US dollar, amid deflationary policy, recouping some of the lost wages of plantations workers.

The plantations have not given an official increase to account for what macro-economists did to the unit of account of their wages. With salaries under ‘wages boards’ from the 2020 through gazettes, neither employees not workers have engaged in the traditional wage negotiations.

The threat to re-exproriate plantations is coming as the government is trying to privatize several state enterprises, including SriLankan Airlines.

It is not clear now the impending reversal of plantations privatization will affect the prices of bids by investors for upcoming privatizations.

The firms were privatized to stop monthly transfers from the Treasury to pay salaries under state ownership. (Colombo/May25/2024)

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300 out of 1,200 Sri Lanka central bank staff works on EPF: CB Governor

ECONOMYNEXT – About 300 central bank staff out of 1,200 are employed in the Employees Provident Fund and related work, Governor Nandalal Weerasinghe said, with the function due to be transferred to a separate agency after a revamp of its governing law.

“When it comes to the EPF there is an obvious conflict of interest. We are very happy to take that function out,” Governor Weerasinghe told a forum organized by Colombo-based Advocata Institute.

“We have about 300 staff out of 1,200 including contract staff, almost 150 of permanent staff is employed to run this huge operation. I don’t think the central bank should be doing this business,”

The EPF had come under fire in the past over questionable investments in stocks and also bonds.

In addition, the central bank also faced a conflict of interest because it had another agency function to sell bonds for the Treasury at the lowest possible price, not to mention its monetary policy functions.

“There has been a lot of allegations on the management of this fund. This is the biggest fund of the private sector; about 2.6 million active, I think about 10 million accounts.

“When it comes to EPF, obviously there’s another thing. We obviously have, in terms of resources, on the Central Bank, that has a clear conflict because we are responsible for the members.

“We have to give them a, as a custodian of the fund, we have to give them a maximum return for the members.

“For us to get the maximum return, on one hand, we determine the interest rates as multi-policy. On the other hand, we are managing public debt as a, raising funds for the government.

“And on the third hand, this EPF is investing 90 percent in government securities. And also, interest rates we determine, and they want to get the maximum interest. That’s a clear conflict, obviously, there’s no question.”

A separate agency is to be set up, he said.

“It’s up to the government or the members to determine to establish a new institution that has a trust and credibility and confidence of the members that this institution will be able to manage and secure an interest and give them a reasonable return, good return for their lifetime savings,” Governor Weerasinghe said.

“The question is that how whether we have whether we can develop that institution, whether we have the strong institution with accountability and the proper governance for this thing.

“I don’t think it should be given completely to a private sector business to run that. Because one is that here we have no regulatory institution. Pension funds are not a regulated business.

“First one is we need to establish, government should establish a regulatory agency to regulate not only the EPF business fund, there are several other similar funds are not properly regulated.

“Once we have proper regulations like we regulate banks, then we can have a can ensure proper practices are basically adopted by all these institutions.

“Then you can develop an institution that we who can run this and can be taken back by the Labour Department. I’m not sure Labour Department has the capacity to do all these things.”

While some EPF managers had come under scrutiny during the bondscam and for questionable stock investments, in recent years, it had earned better returns under the central bank management than some private funds that underwent debt restructuring according to capital market analysts with knowledge of he matter. (Colombo/May24/2024)

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Desperate Sri Lankans seek risky foreign jobs amid tough IMF reforms

ECONOMYNEXT – After working 11 years in Saudi Arabia as a driver, Sanath returned to Sri Lanka with dreams of starting a transport service company, buoyed by Gotabaya Rajapaksa’s 2019 presidential victory.

However, the COVID-19 pandemic in 2020 and an unprecedented economic crisis in 2022 shattered his dreams. Once an aspiring entrepreneur, he became a bank defaulter.

Facing hyperinflation, an unbearable cost of living, and his family’s daily struggles, Sanath sought greener pastures again—this time in the United Arab Emirates (UAE).

“I had to pay 900,000 rupees ($3,000) to secure a driving job here,” Sanath (45), a father of two, told EconomyNext while having a cup of tea and a parotta for dinner near Khalifa University in Abu Dhabi.

Working for a reputed taxi company in the UAE, Sanath’s modest meal cost only 3 UAE dirhams (243 Sri Lankan rupees). Despite a monthly salary of around 3,000 dirhams, he limits his spending to save as much as possible.

Sanath has been in Abu Dhabi for 13 months but had to wait six months before driving a taxi and receiving no salary.

TOUGH REALITIES

“I had to get my UAE driving license. I failed the first trial, and the company paid 6,500 dirhams on my behalf, agreeing to deduct 500 dirhams monthly from my salary,” he explained.

“So far, I have repaid only 3,000 dirhams.”

To raise the 900,000 rupees for the job, Sanath borrowed money from friends and pawned jewelry.

“I don’t know if I was cheated by the agent, but I must repay that money and also send money for my family’s expenses,” he said, glancing at a photograph of his family in a Colombo suburb.

Working night shifts in busy Abu Dhabi, Sanath said, “If I can secure 9,000 dirhams monthly through taxi driving, I will earn 3,000 dirhams in the month after deductions for the license fee and any traffic fines.”

Sanath came to Abu Dhabi with seven other Sri Lankan men through an employment agency in the Northwestern town of Kurunegala.

“Only two of us have withstood the tough traffic rules and payment deductions for offenses,” he said. Some of his colleagues are still job-hunting, while others have returned to Sri Lanka.

Sanath is one of around 700,000 Sri Lankans who have left the island in the last two years due to the economic crisis that forced the country to adopt difficult fiscal and monetary policies, including higher taxes and costly borrowing, exacerbating the cost of living.

FOREIGN EXCHANGE EARNERS

From January 2022 to the end of March 2024, at least 683,118 Sri Lankans migrated for foreign employment through legal channels, according to the Sri Lanka Foreign Employment Bureau.

They have sent $11.31 billion in remittances through official banking channels during the same period, central bank data shows.

Many Sri Lankans leave on visit visas, hoping to find jobs later, often guided by friends already working abroad. The economic crisis has pushed them to seek better opportunities abroad, despite the risks.

Sri Lankan authorities struggle to stop such risk-takers, who sometimes resort to illegal migration, despite warnings about human trafficking.

In Myanmar, 56 Sri Lankans caught in an IT job scam were detained earlier this year, and the government is still repatriating them.

At least 16 retired Sri Lankan military personnel have been killed in the Russia-Ukraine war after being misled by unscrupulous recruiters. Officials estimate that over 400 retired military officers may have left for similar reasons.

DISPERATE TO LEAVE

In March, Foreign Minister Ali Sabry warned against visiting any nation on open visas, urging Sri Lankans to emigrate only through registered agencies.

Despite the risks, many Sri Lankans are desperate to leave.

Abu Salim, a 32-year-old former rugby player, came to Dubai on a visit visa hoping for a banking job, which he never got.

Now freelancing in an insurance firm, he said, “I survive, and my relatives don’t see my struggle. It’s stressful, but still better than Sri Lanka right now.”

Suneth, a former top garment merchandiser, is also job-hunting in Sharjah after quitting his initial job in Sharjah.

“My worry is the visa. I must find a new job before it expires,” he said.

Many Sri Lankans in the UAE work multiple jobs, compromising their sleep and health to make ends meet. (Abu Dhabi/May 24/2024)

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