Sri Lanka’s electricity utility turns around

Nov 23, 2013 (LBO) – Sri Lanka’s state-run Ceylon Electricity Board has turned around with a 17 billion rupee profit up to September 2013 but it was yet to pay down bank borrowings, a finance ministry report said. Ceylon Electricity Board has earned revenues of 142 billion rupees for the nine months and was projected to earn 198 billion rupees in revenues by year end.

In 2011 Sri Lanka went into a balance of payments crisis mostly due to a central bank accommodated credit bubble involving bank financing for electricity and petroleum.

The state created the crisis by undermining the regulator by a decree in the 2012 budget and not allowing it to raise prices as costs rose.

CEB lost 19 billion rupees in 2011 and 61 billion rupees in 2012.

In addition to borrowing from banks on its own, CEB delayed payments to independent power producers and the state-run Ceylon Electricity Board forcing them to borrow from banks and contribute to the credit bubble.

The central bank indirectly accommodated the credit by sterilizing forex sales with printed money and not allowing interest rates to go up, generating the balance of payments crisis by expanding its own balance sheet with domestic assets.