Sri Lanka’s electricity sector is once again drawing attention as the Ceylon Electricity Board (CEB) has officially proposed an 18.3% increase in electricity tariffs for the period from June to December. The proposal has been submitted to the Public Utilities Commission of Sri Lanka (PUCSL) for approval on Friday (16).
This recommended adjustment comes at a time when the sector has recently seen notable tariff reductions and improved financial performance, raising public interest around the necessity and timing of this increase.
According to the CEB, the revision is aimed at covering rising costs in power generation, transmission, and distribution, ensuring the continued delivery of a stable and reliable electricity supply across the country.
Electricity tariffs have undergone a series of significant adjustments since January 2023, starting with a 66% increase aimed at offsetting surging global fuel prices and stabilising the CEB’s cash flow. This was followed by a 14% reduction in July 2023 as fuel prices softened and operational improvements materialised.
In January 2024, a further 20% cut was introduced based on projected lower costs, during which the CEB declared a profit of Rs. 51 billion. More reductions came in March and July 2024, easing pressure on households and industries alike.
The most recent adjustment in January 2025 saw an average 20% decrease across all consumer categories, with some sectors, notably hotels and industries, benefiting from cuts exceeding 30%.
Now, just four months later, the CEB’s intention of a planned tariff increase raises difficult questions.
Where have the profits gone?
According to the CEB, the anticipated hike is driven by unforeseen operational setbacks in early 2025 which had resulted in a loss of around Rs. 9 billion for the month. CEB officials argue that these financial pressures necessitate an upward revision to maintain operational stability and adhere to cost-reflective pricing expectations.
Yet, according to the latest financial statement of the CEB (unaudited), in 2024, the board posted a record Rs. 144 billion net profit, ending the year with Rs. 48 billion in cash reserves. Therefore, questions arose as to why these reserves were not sufficient to absorb temporary operational losses.
More significantly, as highlighted in the financial statement, despite two consecutive years of healthy profits, the CEB’s interest-bearing borrowings barely declined – standing at Rs. 240 billion at the end of 2024, compared to Rs. 245 billion at the end of 2022.
Moreover, as revealed in the financial statement, by the end of 2024, the utility held Rs. 48 billion in cash and equivalents, despite claiming insufficient funds to cover the Rs. 9 billion loss reported in February that year.
The board has reportedly cleared all pending renewable energy payments, yet the question remains: where has the massive profit and cash flow gone?
Adding further complexity is pressure from the International Monetary Fund (IMF), which has insisted that Sri Lanka maintain cost-reflective pricing in public utilities as a condition of its ongoing financial assistance programme. The IMF’s position is that tariff adjustments should mirror the true cost of generation and supply, a principle that the CEB’s proposed increase would ostensibly support.
Against this backdrop, all eyes turn to the PUCSL, which is yet to receive a formal tariff proposal but will soon be tasked with weighing the competing interests at stake.
PUCSL rules out steep hikes
Meanwhile, in a detailed explanation to The Sunday Morning, PUCSL Director General Damitha Kumarasinghe clarified the electricity tariff-setting process, shedding light on common misunderstandings surrounding tariff adjustments, forecasting errors, and the financial status of the CEB.
Kumarasinghe explained that the PUCSL set electricity tariffs twice a year – on 1 January and 1 July – based on forecast costs and revenues which were ideally meant to balance out.
However, he stressed that real-world factors often caused deviations from these forecasts. “Unpredictable events such as prolonged dry seasons, geopolitical tensions, or fluctuations in global oil prices can significantly impact costs, resulting in what is termed a ‘forecasting error.’ This error can lead to either a profit or a loss,” he said.
He also stressed the importance of understanding that forecasting errors were a natural part of the system, where profits and losses had an equal chance of occurring over different periods. Even if the CEB has made profits in consecutive periods, that does not guarantee future profits as numerous external variables can cause prices to surge or fall.
According to Kumarasinghe, profits generated during one period must be passed back to consumers in subsequent periods to ensure fairness.
For example, the PUCSL identified a Rs. 51 billion forecasting error in profit in the first half of 2024, which is being adjusted in the current period. Losses reported by the CEB in February and March of this year, he clarified, were not actual operational losses but rather a pass-through adjustment of this prior profit.
Kumarasinghe also addressed public speculation about an impending tariff increase while explaining that, based on the PUCSL’s current data, a steep hike was not anticipated. He further stressed that final decisions depended on formal submissions by the CEB.
Regarding the IMF requirement for the CEB to generate quarterly profits, Kumarasinghe called this expectation unrealistic. He explained that tariffs were set based on forecast figures which were outside the CEB’s control, making consistent quarterly profits impossible.
The PUCSL operates under a cost-reflective tariff mechanism established legally since 1969, which allows adjustments over longer periods rather than on a quarterly basis.
On the issue of renewable energy curtailment, Kumarasinghe highlighted the challenges faced by the CEB due to delays in infrastructure upgrades, such as planned battery storage installations for 2024 and 2025 that had yet to materialise. This has forced the temporary curtailment of rooftop solar and other renewable energy sources.
He stressed that these issues were not unexpected, noting that CEB itself had forecast potential bottlenecks last year.
While curtailment affects rooftop solar investors and renewable energy capacities, Kumarasinghe stated that the associated financial losses must be carefully verified before being passed on to consumers.
He also said that the PUCSL had requested a comprehensive report on the financial impact, which was still being finalised by the CEB.
Kumarasinghe reiterated that the regulator’s priority was fairness, rather than guaranteeing profits for the CEB. Only efficient and justified costs, as defined in Section 30 of the relevant law, are factored into tariff calculations. Inefficiencies, such as excessive fuel usage or delays that increase costs, cannot be passed onto consumers.
CEB blames PUCSL for financial woes
Amid mounting uncertainty, the CEB’s stability was further shaken as its Chairman handed in his resignation last week, coinciding with the utility’s failure to meet the crucial 15 May deadline for submitting its tariff proposal.
When pressed about inconsistencies in the financial statements, a senior CEB official, speaking on condition of anonymity, told The Sunday Morning that all CEB accounts were subject to stringent Government audits, making any manipulation or concealment of financial data impossible.
“Every figure is transparently and accurately reflected in the financial statements,” the official emphasised.
Responding to the PUCSL assertion that the CEB’s reported losses merely offset profits from previous periods, the official squarely blamed the regulator for the ongoing turmoil.
“Approximately 90% of the challenges confronting the CEB arise from the PUCSL’s persistent failure to implement a truly cost-reflective tariff,” the official charged. “For decades, the regulator has systematically avoided approving tariffs that genuinely reflect the CEB’s operational expenses, exacerbating the financial strain on the utility.”