Professional costing framework should be implemented to determine cost price of electricity

A professional managerial and societal costing framework should be implemented to accurately determine the cost price of electricity and provide competitive pricing to serve all stakeholders. IMF cost recovery electricity pricing should be done efficiently and effectively to achieve cost reduction and not cost increases in electricity pricing.

- By Professor Lakshman R. Watawala

Introduction:

Applications of IMF cost recovery electricity pricing to largest lossmaking SOEs:

When we consider the application of the IMF cost recovery pricing to the three highest lossmaking SOEs which are a burden on the economy the impact of cost recovery will be as follows.

1. Ceylon Petroleum Corporation - Price calculated based on competitive international prices. This has enabled the loss-making CPC to become profitable and also for the private petroleum companies to be profitable as the pricing was based on the international price plus a reasonable margin and the customer pays a competitive price after taxes and duties imposed by the Government.

It is also necessary to look at the proper factory costing for the refinery to determine the correct pricing of fuel supplied to the CEB. This is very important as due to the shortage of water and use of fuel from the refinery which should be at the least cost to reduce the price of electricity generated using fuel.

2. SriLankan Airlines - Lossmaking institution but the IMF formula of Total Cost Recovery Pricing cannot be applied as this is a competitive market-based industry which has to be efficient and productive and cannot pass on inefficiency, wastages to the consumer. Hence IMF cost recovery pricing cannot be applied and have to adopt market-based pricing and other modes to make it efficient and productive.