Think tank argues power tariff structure is outdated, inefficient, riddled with distortions

Sri Lanka's electricity tariff structure is outdated, inefficient, and riddled with distortions that undermine transparency, equity, and economic sustainability, according to a new policy submission by the Advocata Institute.

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The Colombo-based think tank has formally proposed a comprehensive overhaul of the current pricing system to the Public Utilities Commission of Sri Lanka (PUCSL), urging reforms that better reflect the realities of electricity generation and consumption.

“Electricity tariffs in Sri Lanka have never made much economic sense,” the report states. “They are full of distortions, cross-subsidies, and based on outdated assumptions.”

Advocata’s proposals emphasise that electricity, unlike many other commodities, is homogeneous, non-storable, and highly time-sensitive in terms of cost. As such, any rational pricing system must be cost-reflective and sensitive to demand fluctuations throughout the day.

The current tariff structure categorises users—such as domestic, industrial, government, religious, and charitable—under different rate schedules. However, these distinctions often lack a clear rationale. The institute notes, for instance, that a restaurant in a hotel may pay a lower rate than an identical establishment in a shopping mall.