April 17, 2013 / 12:51 PM / 5 years ago

Sri Lanka raises electricity tariff sharply under reforms

* State-run Public Utility Commission approves tariff hikes

* Move to reduce heavy losses in state-run power firms

* Sri Lankan govt has charged less than real cost of power

By Shihar Aneez and Ranga Sirilal

COLOMBO, April 17 (Reuters) - Sri Lankan utility commission approved significant electricity tariff hike with effect from April, officials said on Wednesday, under new reforms to reduce losses in state-run power firms after repeated requests from the International Monetary Fund.

An official document of the Public Utilities Commission of Sri Lanka showed the state-run Ceylon Electricity Board (CEB) has been allowed to raise prices for domestic consumers up to a maximum of 59.4 percent with effect from April 12.

“The Public Utilities Commission has given approval to increase the prices on our proposal with some changes,” Pushpakumara Kulatunga, the acting finance manager at CEB told Reuters.

The new tariff posted in the Public Utilities Commission’s website showed the revisions are expected to boost CEB’s revenue by 72.2 percent to 69.9 billion rupees from domestic consumers and 11.3 percent to 126.1 billion rupees from industrial users.

The CEB incurred a loss of 61.2 billion rupees ($488.04 million) in 2012 as the government subsidised electricity since more than 60 percent of the power in 2012 was generated using expensive fuels.

CEB had posted a loss of 19.3-billion rupees in 2011.

The CEB’s failure to settle state-run Ceylon Petroleum Corporation’s (CPC) bills for fuels saw the oil firm losing 89.7 billion rupees ($715.31 million) last year, following a 94.5 billion rupees loss in the previous year.

Bankers say the borrowing by these companies has drained liquidity from the banking system, and pushed up borrowing costs for private sector firms.

The IMF, which completed a $2.6 billion loan disbursement in July last year, has repeatedly asked the island nation for power reforms and emphasised the need to move toward with cost recovery pricing to place the entities on a sustainable footing.

“All the sectors are going to see a cost hike due to the power tariff rise,” Danushka Samarasinghe, the head of research at TKS Securities told Reuters.

“Overall, there will be cost pressure and this inflationary pressure. Majority of the business will see low profitability due to the price increase.”

However, the central bank on Friday shrugged off concerns over a spike in inflation due to expected increase in power bills, saying annual inflation in April could be marginally higher than 6.3 percent, but still less than last month’s 7.5 percent.

$1 = 125.4000 Sri Lanka rupees Writing by Shihar Aneez; Editing by Bijoy Koyitty

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