- CEB looks to transfer large component of debt to hydropower company
- Legacy debts remain a priority for settlement and restructuring: Jayawardena
Concerns are mounting over the handling of the Ceylon Electricity Board’s (CEB) substantial debt as the State-run entity undergoes a major restructuring under the newly-enacted Sri Lanka Electricity Act No.36 of 2024. The controversial decision to allocate a significant portion of this debt to the hydropower unit has raised alarms among industry experts, politicians, and the public alike.
As reliably learnt by The Sunday Morning, the CEB plans to transfer a large chunk of its billion-rupee debt to the company responsible for hydropower under the new electricity reforms. These reforms, which aim to maintain Government control over hydropower generation without opening it up to private investment, have sparked concerns that the debt burden will cripple the financial viability of the hydropower sector.
A strategic misstep?
The proposed strategy involves restructuring the debt as an additional expense within the hydropower unit.
A senior Government official, speaking to The Sunday Morning, justified this approach by arguing that hydropower was currently the most cost-effective method of electricity generation. The official explained that this cost-efficiency was the rationale behind incorporating the debt into hydropower expenses, despite alternatives that could have spread the financial load more equitably across other sectors.
Against such a backdrop, the Power and Energy Ministry, alongside the Treasury, has instructed the CEB to draft a comprehensive plan to address its legacy debts. Yet, as of now, the specifics of how these debts will be distributed remain unclear.
Speaking to The Sunday Morning, Power and Energy Ministry Secretary Dr. Sulakshana Jayawardena stressed the urgency of addressing these longstanding debts which have hampered the CEB’s financial stability for years.
“Our primary focus is on legacy debts, which are longstanding and need to be repaid. Other loans and debts are serviced regularly with the board’s income, but the legacy debts remain a priority for settlement and restructuring,” Dr. Jayawardena noted.
Despite this acknowledgment, the lack of a clear, transparent plan has left many stakeholders in the dark, fuelling speculation and concern.
Dr. Jayawardena further admitted: “We have not yet planned to use the funds to pay off the legacy debts. Instead, we are developing a different approach for their settlement.” However, this statement has done little to assuage fears that the proposed restructuring could lead to higher electricity tariffs, as the debt burden is passed on to consumers.
The debt allocation plan is backed by Section 18(3)(b) of the Sri Lanka Electricity Act No.36 of 2024, which allows for the distribution of the CEB’s existing financial liabilities among the successor companies that will inherit its assets. Specifically, the act states that a portion of these liabilities, including supplier debts, should be allocated to the company taking over the hydropower assets, with the remainder distributed among other successor entities.
The act also outlines the creation of several new companies, including a Treasury-owned entity for hydropower assets, another for coal power plants, and separate entities for thermal and wind power generation. These companies will operate under the Companies Act No.7 of 2007, with significant Treasury ownership ensuring continued Government oversight.
A mixed bag
The CEB’s recent financial performance presents a mixed picture. On one hand, the board reported a significant profit of Rs. 61.2 billion for the fiscal year ending December 2023, a dramatic turnaround from the previous year’s staggering loss of Rs. 298 billion. This resurgence has been attributed to favourable weather conditions and strategic pricing adjustments.
However, the CEB’s costs remain a challenge. Fuel expenses alone rose sharply by Rs. 7.6 billion in March, with thermal generation costs also seeing a significant increase. Despite a notable boost in revenue, driven by higher electricity sales and a one-time gain from the divestiture of a subsidiary, the board’s overall cost management continues to be a point of contention.
Dr. Jayawardena stressed the complexity of the CEB’s financial situation, stating: “There are several components involved, such as legacy debts, working capital, and ongoing commitments.”
His remarks underscore the daunting task facing the CEB as it navigates the intricacies of debt restructuring while maintaining operational stability.
Nevertheless, the decision to saddle the hydropower unit with such a significant debt load has not gone unnoticed. Critics argue that this move could jeopardise the sustainability of Sri Lanka’s most reliable and cost-effective energy source. By placing a disproportionate share of the CEB’s financial woes on hydropower, the Government risks undermining the very sector that has been instrumental in the country’s energy security.
Moreover, the lack of transparency and public consultation surrounding the debt restructuring plan has fuelled suspicions. Many are questioning whether the Government is prioritising short-term financial gains over long-term energy stability and affordability.
In this context, when contacted by The Sunday Morning, Power Sector Reforms Secretariat (PSRS) Head Dr. Pradeep Perera emphasised that discussions were still ongoing and that no final decision had been made yet.
However, a senior engineer at the CEB revealed that there was a high possibility that the debt would be absorbed by a Government-owned entity, as no investor would be willing to invest in a company burdened with such a massive debt. Even if an investor were to come forward, they would not take on the debt; instead, the debt would likely be passed on to the public.
“This is why we said that tariffs would increase as soon as the sector opens up for investment. When a private investor enters the market, it is a business for them, not a national responsibility; therefore, they will not incur losses. A business has to be profitable, and to attract more investors, the industry must be presented as a profitable one,” the engineer said.