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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Failing to reform CEB, govt. passes entire burden on to consumers

Failing to reform CEB, govt. passes entire burden on to consumers

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CSE.SAS

CSE.SAS
Global Moderator
After failing to reform the CEB, top economists warned that households and industries would be affected ‘very badly’ by the massive electricity price hike unless gains made by the price revision treacle down to vulnerable households and the rupee is allowed to depreciate against the US dollar to keep the country’s falling exports competitive.

Over the years the Ceylon Electricity Board has sustained massive losses, reaching almost 1 percent of GDP in 2012. Losses at the CEB grew 217 percent to Rs. 61.2 billion in 2012 from Rs. 19.3 billion a year earlier.

CEB’s short-term borrowings from banks, other outstanding liabilities to the Ceylon Petroleum Corporation and to Independent Power Producers (IPPs) amounted to Rs. 137 billion while long-term outstanding liabilities stood at Rs. 296 billion as at end 2012.

Containing losses at both the CEB and CPC (where losses fell 5 percent to Rs. 89.7 billion in 2012 from Rs. 94.5 billion a year earlier) were seen as crucial steps in tackling long standing structural imbalances in the economy.

"There were two ways in doing this: One was to adjust electricity prices and two, reform the CEB where supply side problems such as generation, transmission and distributional losses were contained. Ideally it should have been a combination of both," Institute of Policy Studies Executive Director Dr. Saman Kelegama said.

He said that in the past, attempts were made to reform the CEB and address the supply side problems.

"Once a proposal was made to restructure the CEB by unbundling its various functions and establish private-public partnerships. But this never took off. Then, another proposal was made to create separate business units without unbundling the CEB, with each unit expected to function on a commercial basis. Both these strategies never took off. So there were no supply side reforms, so today, the entire burden has been passed on to consumers.

"For industries, this (the electricity price hike) would mean rising costs of production, which should reflect in the exchange rate, otherwise our exports would continue to lose their competitiveness," Dr. Kelegama said.

"The electricity price hike will affect the people very badly, but if this helps to bring down loses at the CEB, and help the country address its resource gap, then growth could be redistributed more equitably, and this would help households going forward," IPS Chairman Prof. W.D. Lakshman said.

The two senior economists made these comments at the launch of the UNESCAP 2013 annual report in Colombo yesterday (18).
http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=77088

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