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.