Electricity tariffs: Accounting, clawbacks, and meddling by IMF

CEB is a regulated monopoly where the consumer tariff is determined by the regulator, the Public Utilities Commission of Sri Lanka (PUCSL) as per the country's law. The tariffs are based on a cost-reflective principle inclusive of return-on-assets, governed by a tariff methodology revised every five years. This mechanism is designed to avoid the utility from leveraging their monopoly position to overcharge consumers in search of profits. It also requires them to operate in an efficient manner, which has never happened.

- By Dr. Vidhura Ralapanawe

Introduced in 2013, the mechanism was never properly operationalised, due to political pressure exerted to the CEB by successive Governments to not file tariff requests. In three instances where tariff revisions were made, political interference was evident — 2014 tariff reduction (CEBEU and Treasury), 2023 February tariff increase (Ministry of Power), and 2023 October tariff increase (IMF, Treasury and the Ministry of Power).

In the current tariff revision process, the shadow of IMF is looming large. IMF has already withheld the next tranche of the structural adjustment facility, placing prior actions on tariff for the next disbursement.

CEB profits and cost reflective tariffs

Reading IMF statements, raises questions on what IMF really wants. IMF appears to be talking about three things, which are interrelated but different and not always aligned.

The structural benchmark of cost recovery pricing is established

Effective operation of Bulk Supply Transaction Account (BSTA), which is a cashflow management mechanism within the regulatory process, with automatic +-10% pricing adjustment if this account balance goes above 15 Billion or goes below negative 15 Billion

CEB should not make losses on a forward looking basis

Cost recovery principles and clawbacks

Sri Lankan electricity tariffs ARE based on cost reflective principles, contrary to the statements by IMF Mission Chief, Evan Papageorgiou¹ when PUCSL was allowed to make independent tariff determinations.