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Tuesday November 29th, 2022

Sri Lanka’s Ceylon Electricity Board loses Rs20bn up to April 2020

ECONOMYNEXT – Sri Lanka’s state run Ceylon Electricity Board lost 20.8 billion rupees up to April 2020, on top of a 85.4 billion rupee loss in 2019, as revenues and sales fell amid a Coronavirus lockdowns and a cash injection was made, official data showed.

Electricity sales volumes fell 15 percent to 4,016 GigaWatt hours (millions of units) in the first four months of 2020, a Finance Ministry report said, with low demand from industry holes and general purposes business amid a Covid-19 lockdown.

Revenues had fallen 14 percent to 67.2 billion rupees from 78,254 billion a year earlier.

The operation loss was 25,905 million in the first four months of 2020, up from 23,115 million last year.

Last year CEB lost 85.4 billion rupees. State-run Ceylon Petroleum Corporation (CPC) gives furnace oil at high fixed prices to the CEB which is not linked to market costs.

The finance ministry said furnace oil price were cut to 70 rupees in March 2020, from 92 rupees earlier. CEB officials had warned that wrong pricing leads plants which use fuel which are more costly to import being operated according to a merit order.

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Ceylon Electricity Board forced to idle cheaper plants as financial crisis worsens

Sri Lanka’s CPC loses Rs45 billion to April 2020 amid soft-peg collapse

The CEB also could not collect revenues amid curfews, which drove bank loans to 107.9 billion rupees by April 2020 from December 89,420.

A the end of April, the government had given 48 billion rupees to from fuel price stabilization fund (FPSP) from taxes levied from fuel sales.

The fund was supposed to be made from taxes on fuel with retail prices being kept stable when oil prices fall.

Data from the central bank showed that 50 billion rupees were printed for the fund for reasons which are not clear.

However, the Finance Ministry said the 48 billion rupee injection kept the arrears to the CPC and Independent Power Producers at 100.9 billion rupees. (Colombo/July15/2020-sb)

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A new Sri Lanka monetary law may have prevented 2019 tax cuts?

ECONOMYNEXT – A new monetary law planned in 2019, if it had been enacted may have prevented the steep tax cuts made in that year which was followed by unprecedented money printing, ex-Central Bank Governor Indrajit Coomaraswamy said.

The bill for the central bank law was ready in 2019 but the then administration ran out of parliamentary time to enact it, he said.

Economists backing the new administration slashed taxes in December 2019 and placed price controls on Treasuries auctions bought new and maturing securities, claiming that there was a ‘persistent output gap’.

Coomaraswamy said he keeps wondering whether “someone sitting in the Treasury would have implemented those tax cuts” if the law had been enacted.

“We would never know,” he told an investor forum organized by CT CLSA Securities, a Colombo-based brokerage.

The new law however will sill allow open market operations under a highly discretionary ‘flexible’ inflation targeting regime.

A reserve collecting central bank which injects money to push down interest rates as domestic credit recovers triggers forex shortages.

The currency is then depreciated to cover the policy error through what is known as a ‘flexible exchange rate’ which is neither a clean float nor a hard peg.

From 2015 to 2019 two currency crises were triggered mainly through open market operations amid public opposition to direct purchases of Treasury bills, analysts have shown.

Sri Lanka’s central bank generally triggers currency crises in the second or third year of the credit cycle by purchasing maturing bills from existing holders (monetizing the gross financing requirement) as private loan demand pick up and not necessarily to monetize current year deficits, critics have pointed out.

Past deficits can be monetized as long as open market operations are permitted through outright purchases of bill in the hands of banks and other holders.

In Latin America central banks trigger currency crises mainly by their failure to roll-over sterilization securities. (Colombo/Nov29/2022)

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Sri Lanka cabinet clears CEB re-structure proposal: Minister

ECONOMYNEXT – Sri Lanka’s cabinet has cleared proposals by a committee to re-structure state-run Ceylon Electricity Board, Power and Energy Minister Kanchana Wijeskera said.

“Cabinet approval was granted today to the recommendations proposed by the committee on Restructuring CEB,” he said in a twitter.com message.

“The Electricity Reforms Bill will be drafted within a month to begin the unbundling process of CEB & work on a rapid timeline to get the approval of the Parliament needed.”

Sri Lanka’s Ceylon Electricity Board finances had been hit by failure to operate cost reflective tariffs and there are capacity shortfalls due to failure to implement planned generators in time. (Colombo/Nov28/2022)

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Sri Lanka new CB law to cabinet soon as IMF prior action

ECONOMYNEXT – Sri Lanka’s new central bank law will be submitted to the cabinet as a prior action of International Monetary Fund with clauses to improve governance and legalize ‘flexible’ inflation targeting, Central Bank Governor Nandalal Weerasinghe said.

Under the new law members of the monetary board will be appointed by the country’s Constitutional Council replacing the current system of the Finance Minister making appointments.

“It will be a bipartisan approach,” Governor Weerasinghe told an investor forum organized by CT CLSA Securities, Colombo-based brokerage.

“The central bank’s ability to finance the budget deficit will be taken out. Thirdly the flexible inflation targeting regime will be recognized in the law as the framework.”

The law will also make macro-prudential surveillance formally under the bank.

There will be two governing boards, one for the management of the agency and one to conduct monetary policy.

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