Oct 16, 2012 (LBO) – Sri Lanka has to take actions to diversify the country’s energy mix and pay more attention to pricing energy and cut losses in state energy enterprises to keep the economy stable, top officials said. State-run Ceylon Petroleum Corporation ran up losses as it subsidized state-run Ceylon Electricity Board. The CEB also delayed payments to independent power producers forcing them also to take credit.
The CPC was also owed money by state-run SriLankan Airlines, which ran up losses of over 150 million US dollars in 2011.
The Central Bank which did not allow interest rates to rise in the face of rising credit demand, instead injected newly created money into the banking system, putting pressure on a currency peg and losing foreign reserves.
Sri Lanka’s rulers also subsidize diesel in the weird belief that inflation is diesel related and not monetary. By the first quarter of 2012, CEB was unable to even pay the Treasury the taxes it collected from over-priced petrol.
In February energy prices were jacked up, interest rates raised and the exchange rate was allowed to move in line with monetary policy. The rupee then fell from 110 to 134 and has since recovered to 128.50 to the US dollar