• Highlights financial viability, sustainability, consumer protection, cost recovery, cost reflectiveness, infrastructure, financing, incentive structures, investments in storage/emerging tech (green hydrogen), renewables, accurate forecasting, tariff methodology, predictability, targeted subsidies, restructuring, PPAs, cost breakdowns, info systems, governance, regulatory independence.

Sri Lanka’s ongoing electricity sector reforms having highlighted the urgent need to align financial viability, sustainability, and consumer protection, a discussion on tariff methodology was held together with policymakers and experts underscoring that both cost recovery and cost reflectiveness are vital.

These views were expressed at a discussion held in line with the International Monetary Fund (IMF) – Extended Fund Facility programme, to review the electricity tariff methodology in consultation with the IMF staff. As it had been prescribed as a prior action to be completed by the end of November of this year, a team led by Senior Economist – Fiscal Affairs Department Delphine Prady held a joint meeting with the Parliamentary Committee on Public Finance (COPF), the Committee on Public Enterprises (COPE) and the Parliamentary Sectoral Oversight Committee on Infrastructure and Strategic Development (SOC), other Parliamentarians, officials representing the respective ministries and other stakeholders. This technical discussion was held on 12 September at the Parliament premises.

During the discussions held, it was noted that cost recovery ensures that the sector as a whole covers its total expenditure, thereby preventing inefficiencies and attracting the investment and credit needed to modernise. Meanwhile, cost reflectiveness ensures that consumers pay based on the actual cost of serving their demand, thereby reducing unfair cross-subsidies. Without recovering costs, inefficiencies multiply and there is no way to attract new investment.

The country’s renewable energy target of 70% by 2030 was a central focus. Experts emphasised that to achieve this, Sri Lanka must establish the right infrastructure, financing, and incentive structures. Expanding solar, hydro, and wind energy, coupled with investments in storage and emerging technologies such as green hydrogen, will be essential. While thermal power continues to play a role, it was described as “super expensive” and highly volatile, exposing the sector to global price shocks. Renewables, by contrast, were recognised as increasingly competitive but requiring upfront investment.

It was also cautioned during the discussions that the volatility of generation costs poses risks to both financial stability and consumers. The need for accurate forecasting and careful planning to avoid passing sudden cost spikes onto households and businesses was underlined. It was discussed that the tariff methodology must therefore provide not only cost recovery but also predictability, while steering investment towards least-cost and environmentally friendly generation.

MPs highlighted the importance of safeguarding vulnerable households through targeted subsidies, protecting workers affected by restructuring, and ensuring that efficiency gains translate into fair outcomes for end-users.

Concerns were also raised over data integrity and transparency, with gaps in power purchase agreements (PPAs), incomplete cost breakdowns, and weak information systems. It was stressed that without stronger governance and regulatory independence, a modern and effective tariff methodology cannot be applied successfully.

It was agreed that tariff reform cannot be treated as a purely technical exercise. It must be grounded in policy objectives that deliver a financially viable power sector, ensure a sustainable shift to 70% renewables by 2030, protect vulnerable communities, and strengthen transparency and accountability across the industry.