A new position paper titled ‘Powering Forward: Why Unbundling the CEB is Critical for Sri Lanka’s Energy Future,’ released by the Advocata Institute, underscores the urgent need to reform Sri Lanka’s electricity sector through unbundling the Ceylon Electricity Board (CEB) and boosting private sector involvement.
The paper, which discusses key proposed amendments to the Sri Lanka Electricity Act No.36 of 2024, highlights Sri Lanka’s severe fiscal constraints following the 2022 economic crisis and sovereign debt default. It stresses that maintaining full State ownership limits the Government’s ability to invest in critical infrastructure amid tightening public finances and growing debt servicing costs.
According to the report, Sri Lanka’s post-crisis fiscal environment has significantly reduced public investment capacity, with interest payments consuming nearly two-thirds of Government revenue. The continued reliance on State-Owned Enterprises (SOEs) like the CEB to finance infrastructure through borrowing risks worsening public debt and jeopardising credit ratings, currently rated at ‘Caa1’ by Moody’s.
The position paper further draws attention to the growing issue of circular debt within State entities, undermining liquidity and fiscal transparency across the energy supply chain. It warns that the CEB’s borrowing model, supported by Government guarantees, is no longer sustainable under new banking regulations and tighter restrictions on sovereign guarantees introduced in 2024.
Despite these challenges, ‘Powering Forward’ also identifies opportunities arising from Sri Lanka’s ageing population, which is projected to include one in four citizens over the age of 60 by 2042. The paper suggests this demographic shift could attract long-term, stable investments from pension funds and institutional investors – groups that typically favour the steady returns offered by electricity utilities.
Advocata Institute argues that unbundling Sri Lanka’s electricity sector – particularly the vertically integrated CEB – has strong economic merit and is essential for improving efficiency, attracting investment, and safeguarding strategic interests without requiring full State ownership.
Unbundling typically involves separating competitive elements like electricity generation and retail supply from natural monopoly components such as transmission and distribution. This separation ensures that all market participants have non-discriminatory access to critical infrastructure, thereby fostering fair competition and enabling better service delivery.
The paper outlines four models of separation – structural, functional, accounting, and corporate – with structural and corporate forms offering the highest levels of transparency and neutrality. Citing international examples from Chile, Argentina, and India, the report notes that while unbundling does not always lower consumer prices, it consistently improves service quality, labour productivity, and investment in infrastructure.
The position paper challenges the widely held assumption that full State ownership is necessary to protect national strategic interests in sectors like electricity. Instead, it advocates for regulation-based oversight, partial ownership, and competitive neutrality to ensure public objectives are met.
The report emphasises that SOEs often distort markets when they benefit from preferential treatment, such as debt guarantees or tax advantages, thereby undermining competition and accountability.
Drawing from global best practices, the paper stresses the importance of sound regulatory institutions – ones that are independent, credible, and accountable – to oversee and enforce fair access, pricing, and performance standards. It highlights how effective regulation and governance, not ownership alone, determine the success of public services.
Furthermore, the paper argues that Sri Lanka’s current model, which concentrates control of generation, transmission, and distribution in the hands of a single State-owned utility, suppresses innovation and efficiency, especially given the Government’s constrained fiscal capacity.
Instead of full vertical reintegration, the report proposes structural reforms that promote private participation, particularly in generation and select transmission and distribution functions, while safeguarding strategic assets through tools such as regulatory oversight, golden shares, or majority stakes. In doing so, Sri Lanka can achieve both economic efficiency and energy security without reverting to an outdated model of full State control.