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MR Bows Down To IMF

Nov 27, 2010 2:24:30 PM - thesundayleader.lk
  • 8% Electricity Hike

President Mahinda Rajapaksa

The export and industry sectors’ competitiveness could still be maintained despite the 8% electricity tariff hike, compensated by the reduction in the country’s interest rates, Central Bank of Sri Lanka (CBSL) Governor Ajith Nivard Cabraal said.
He was replying to a question raised by this reporter at a budget seminar conducted by KPMG on Tuesday.
President Mahinda Rajapaksa presenting Budget 2011 in Parliament on Monday, announced this hike, for those entities consuming more than 90 units of electricity a month. This increase will be effective from next year.
It’s said that Sri Lanka has one of the highest electricity rates in the region, thereby impinging on its export competitiveness.
Both CEB Chairman Vidya Amarapala and Power and Energy Minister Patali Champika Ranawaka, had, either previously told this reporter, or, in a public forum where this reporter was also present, or in both, that electricity rates will not be raised.
Sri Lanka’s exports last year, largely due to the recession, fell by 13%, year on year in US dollar terms.
The industry, so far for the year, is struggling to keep abreast with its 2008 performance (last year’s performance may be discounted because of the recession), mainly due to the loss of the GSP + duty free concession in exports to the EU due to Colombo’s alleged human rights violations, especially in the last days of the war with the LTTE, with garments, Sri Lanka’s biggest export in particular, taking a hit as a result.
Such rate increases also do have cascading effects right down the supply chain, as such their’s is not a “once and for all” effect, but a cumulative effect.
Part of the reason for the high electricity rates in the island is an attempt to reduce CEB’s losses, mainly caused by its dependency on the more expensive diesel fuel for electricity generation.
The Government which has committed itself to the IMF to obtain a US$ 2.5 billion standby arrangement, has, among its several pledges to the Fund, also agreed to ensure that the loss making CEB and the Ceylon Petroleum Corporation (CPC), both state owned entities, will break even by next year.
CPC provides fuel to the CEB on credit terms, the recovery of which has been made difficult due to CEB’s parlous financial state.
CEB’s dependence on diesel shifted during President Chandrika Bandaranaike Kumaratunga’s regime, where the country then encouraged independent power producers, mainly providers of diesel power, to set-up shop here, to prevent power outages, with the CEB being the monopoly purchaser.
Cabraal speaking at another event also on the same day said that the downward interest rate difference, which he said is equivalent to 100 basis points, translates to a saving of Rs. 160 billion.
Chevron Lubricants Lanka Managing Director Kishu Gomes told this reporter that the reduction in corporate tax levels by seven percentage points in Budget 2011, ie from 35% to 28%, compensates for the increase in electricity tariffs by 8%.
Cabraal further said that from a retail perspective, as this increase would be applicable to those who consume more than 90 units monthly, the majority of the population, ie 70%, who consume less than 90 units, will escape the increase.
CBSL Assistant Governor Ananda Silva told this reporter that once the cheap coal fired power plants come on stream, it would be possible to reduce the country’s electricity rates.
But with the present day rains, the catchment areas, especially the Mahaweli hydro power reservoirs, may be brimming to capacity. Why not pass on the price advantage to the consumer, as costly diesel power generation at least for now is being minimised?
Perhaps, Rajapaksa, like what his predecessor the late President J.R. Jayewardene, in his negotiations with lending agencies such as with the World Bank and the IMF used to do, when other options failed, by quoting the likes of Dante (“Abandon hope all ye who enter herein”-his famous reference to the Bretton Woods twins), in trying to get a better offer, should also try to emulate such tactics in his dealings with such institutions, without giving into them carte blanche.
But then Rajapaksa now has the China alternative which Jayewardene did not!
Powerful enough to fight the UN and other international bodies, but not powerful enough to fight the IMF?