Aug 29, 2012 (LBO) – Sri Lanka’s renewable energy firms have demanded higher tariffs after the rupee depreciated and interest rates rose following a balance of payments crisis, at a public consultation called by the power regulator. Renewable energy firms said the rupee had depreciated from 110 to over 130 (about 18 percent) over the past year pushing up their capital costs.
Ironically a key trigger for Sri Lanka’s most recent balance of payments crisis the large volumes of bank credit taken by state run Ceylon Electricity Board and Ceylon Petroleum Corporation to subsidize energy in a drought year.
The Public Utilities Commission failed to raise power prices both in June and December due to a political decision, though it was expected to do under its governing law, due to political decision making.
The Central Bank then sterilized foreign exchange sales with printed money worsening the problem. Energy prices were raised in February 2012 and sterilized foreign exchange sales were gradually reduced, but not before the rupee fell to 130 levels.
Since the analysts have said that unsterilized purchases of large dollars inflows by the Central Bank has prevented the rupee from appreciati