The Way Forward For Electricity Reforms In Sri Lanka

 By Harsha Gunasena –

Harsha Gunasena

Once the government declared its intentions to amend the Sri Lanka Electricity Act No 36 of 2024 there was a debate erupted about the proposed amendments with some petitions filing in the Supreme Court as well. The government went ahead with the amendments with the recommendations by the Supreme Court and enacted Sri Lanka Electricity Amendment Act No 14 of 2025. The discussion about the Electricity Sector continues and in this light a series of organized discussions were conducted, initiated by Citizens’ Task Force on Power sector Reforms, podcasted by SL Vlog.  In the final forum it was  revealed that Energy Transition Bill will be introduced in 2026 and  the policies of energy, electricity and tariff will be discussed with the public prior to enacting the Bill. The final forum mainly focused on the Electricity Mix and the Reforms.

Electricity Mix

Many countries are moving towards Renewable Energy (RE). One reason for this is that to reduce carbon emissions for which  many  governments promised and committed  under the Paris Agreement. RE such as solar and wind are abundantly available. The cost of technology to convert these power sources to electricity is coming down. However these sources are not stable unlike the power plants run with  diesel or heavy fuel where there is a constant supply. In order to balance the RE based variation of supply and to increase stability of the system investments are needed in storage and inertia enhancement. So, the buying price of RE shall be tied up with associated costs.

Reforms

In many countries different functions such as generation, transmission and distribution are handled by different entities and competition among the companies in same category are encouraged. Through the competition wholesale and retail markets of electricity are created. Sellers and buyers of the wholesale market are generators and distributors and  of the retail market are distributors and consumers respectively.  Generally, the sellers have contracts with the transmitters to supply the electricity. Consumers can buy electricity from the distributor of his choice. This is largely the model of modern electricity distribution. The ownership of these entities varies from country to country which could be public owned, privately owned or mixed ownerships.

It is appropriate to understand the broad situation in Electricity Mix and Reforms done in three sample countries.

Hungary

Hungary, a former communist country, has very low electricity tariff (first half 2025) within the EU. In 2024 around 33% of electricity supply comes from nuclear power which is considered as clean power and solar 23%. LNG and coal 15% and 19% is imported. Wholesale and retail power markets are there and Hungarian Power Exchange was established in 2007 and it is a partner and service client of EPEX SPOT which is the European Power Exchange. Electricity sector of Hungary is dominated by MVM Group which is a government owned company which is subsidized by the Hungarian Government. For instance in 2021 MVM share capital was increased by around USD 563 Mn and in 2022 it was around USD 108mn. This is for strategic expansion as well as to cover losses. In addition to that the government arranges loan facilities to the company. (Annual reports of MVM)

Germany

On the other hand, Germany which is having highest tariff within EU (first half 2025) does not have nuclear power plants. Power mix in 2024 was renewables 58% (wind power 23% included), Hard and Lignite Coal 21% and Natural Gas 15%. Germany is a member of EPEX SPOT and for a long time Germany was a net exporter of power which was changed in 2023. Renewable generation was mainly done by the private companies. Generation and  Transmission are mostly private owned and distribution system includes city owned public utility companies, corporatives and international companies. There are demands that the government should take back the control of the electricity sector.

Australia

All the Australin States are members of the NEM, the National Power exchange other than Western Australia (WA) and Northern Territory due to distance. In WA there is a wholesale electricity market in Perth and surrounding areas. The State government-owned retailer, Synergy, is the sole retailer for most residential and small business customers. Power companies in WA are mostly owned by the State government. This is the same in Queensland as well. In South Australia (SA) RE accounts for 74% in 2024. In Tasmania with hydro power plants accounts for 95% of RE. All the other States have low level of RE and the cost of electricity is high in SA. Power companies in SA are private companies and there are requests that the State should take the control back.

Sri Lanka

In Sri Lanka there is an ideology that government entities should not be privatized. From 1956 onwards private entities were taken over by the government so that the authority of the government was increased. From 1977 onwards some entities were privatized and in most cases the process was not transparent. One of the main contributors to the financial crisis in 2022 was the continuous losses of the State-Owned Entities (SOE), subsidized by the State. Hence the cost reflective prices were introduced to SOEs. Restructuring of CEB and unbundling of it was initiated in 2024 in this light although it was initiated in two decades back and abandoned later.

Since the government cannot do large investments under the crisis situation, private sector participation is much needed. By divesting the ownership of existing entities, an efficient management of those entities could be ensured. The government should focus on the improvement of cashflows locally and internationally rather than on building assets.

Ownership of LTL Holdings, which was much debated, came in to light under these circumstances. Only questionable transaction was to buy the foreign shareholder’s holding by the employees after rejected by the CEB to buy the same. If CEB were a private entity that opportunity would not have been missed. If CEB bought these shares the growth of the company may have been hindered. It is a misconception that the Auditor General only does a proper audit. According to the constitution Auditor General cannot do this audit. Under the circumstances the government should allow LTL to go ahead with the proposed IPO if Soba Dhanavi is a reality. This is how investments come.

Power Mix in Sri Lanka discussed at the final forum

The Long Term Generation Plan of power generation developed by Ceylon Electricity Board (CEB) wherein 70% RE is proposed from 2030 onwards was criticized at the forum. It was pointed out that the country has not commissioned coal power plants in time. The country has not invested in transmission at the appropriate times. Transmission from the areas where RE is generated to Western Province should have been improved. In order to facilitate Roof top solar, distribution lines also should be improved. The issue now is whether to invest USD 5bn (hypothetical figure) in transmission or to invest USD 2Bn (hypothetical figure) in distribution now and achieve the same results. It was pointed out that if this investment in distribution lines is made, the share of roof top solar can be increased which was experimented in WA. Hence, we can go beyond 70% of RE. Also, there are provisions in the Act allowing the private sector to undertake these investments as discussed later in this article.

Several power plants were constructed saying that the input would be LNG but the input remains diesel since we do not have the infra structure for pumping LNG. However, LNG is not cheap in comparison to RE although it is cheaper than diesel and we cannot reduce the electricity tariff  with LNG Power Plants. When investors come to Sri Lanka or when Sri Lankan goods are exported if the country has given more weight on RE in electricity generation it would be advantageous.

When planning we should have an understanding to which the electricity could be used, for instance whether it is for data centers or to manufacture of hydrogen.

Proposed Reforms in Sri Lanka discussed at the final forum

We all know the changes of ownership and number of companies established by the amendment Act. Section 15 of the 2024 Act was not amended so that the private investors can build new transmission lines. Section 30(2) was amended to introduce National Electricity Market consisting of Wholesale Spot Market, Wholesale Market, Ancillary Market and Retail Market to replace mere Wholesale Market in 2024 Act.

There are Generation companies even now owned by the private entities. It was pointed out that the proposed government owned Generation Company can align with private partners and bid for the tenders. Under the distribution there can be private retailers as well and for that there are no restrictions in the Act

Therefore, the intention of the government seems to be that to keep the existing assets of the State as they are while keeping the provision for private capital for the enhancements, which can be transmission or distribution lines, generation plants or entering of new distributors to the retail market. Whoever who invests the recovery of that investment should come from the tariff.

Finally there was an important dictum expressed. When unbundling; the product should be commercialized with competition and market freedom; the entity should be corporatized with independent directors; and the ownership should be divested through the stock market.

Connecting with India

In the CEB Power Plan, the connection with the Indian power exchange was discussed. The world is moving towards connected power grids as discussed. What Sri Lanka can do is to sell to India when there is an excess generation of RE  and buy from India when needed. Unlike EU the cross-border power exchanges of India with other bordering countries remain bilateral. All the affected countries should discus and make it multilateral rather than avoiding even to have a bilateral connection.

Conclusion

Since the government has taken steps to implement the Act, we can anticipate that the final transfer plan will come within one year as promised in the amendment Act.

The government is following the IMF programme so that the country is not moving towards a financial crisis. But the need of the hour is growth which comes from the investments for which the government cannot contribute. If the investments are not coming a quick way is to sell some of the government entities.

The economic future of Sri Lanka is lying with physical connection with India not only the power grid. For that Sri Lankans should shed their fear psychosis when dealing with bigger countries. In foreign relations Sirima Bandaranaike and Ranil Wickremesinghe has shown us the way.

*The writer acknowledges the contribution made by Keerthi Godigamuwa in writing this article"

Published in Colombo Telegraph on December 6, 2025

https://www.colombotelegraph.com/index.php/the-way-forward-for-electricity-reforms-in-sri-lanka/