The loan will carry an interest rate of only two percent and is repayable over 20 years.
"We hope to generate power at the coal power plant at a unit cost of 7-8 rupees which will allow the CEB to turn its present losses into a profit and allow it to reduce consumer tariffs," he said.
"The main reason for power to cost so much now is because of our dependence on petroleum - 60 percent of our power is generated by diesel, so when diesel prices are high, the cost of power is also high.
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The CEB is now losing 1.50 rupees a per unit of electricity which it sell at 13 rupees but which costs 14.
50 rupees to generate, Seneviratne said.
The coal power project will make a "tangible difference" in the CEB's generation costs and enable it to reduce dependence on and use of high-cost diesel power plants.
Power and Energy Minister John Seneviratne said the two governments had signed a commercial agreement for the second phase of the Norochcholai coal power project in the north-western Pu