Sri Lanka’s energy sector pricing a crucial factor in country’s competitiveness: Economist

May 08, 2015 (LBO) – Sri Lanka’s energy sector price structure and availability plays a crucial part in the economy’s competitiveness, a senior economist said.

“The price and availability of energy is a crucial determinant of the competitiveness of an economy and there is also a nexus between the power and energy sector and overall development outcomes,” Indrajit Coomaraswamy, a senior Economist and deputy Chairman of the Path Finder Institute said at a recent forum.

“Inefficiencies in this sector, which is the life blood of the economy, can undermine competitiveness throughout the system,”

“Globalization places a high premium on competitiveness. Both exports and import competing sectors need to be competitive to achieve accelerated growth and development.” Coomaraswamy said.

Critics says electricity tariffs are a key factor affecting competitiveness of Sri Lankan enterprises and the implementation of a transparent and market-reflective energy pricing mechanism, rather than ad-hoc adjustments is a must.

They also recommend that attention be placed on addressing the quality of electricity supply, particularly issues of power brown-outs and fluctuations, and efficiently meeting the emerging needs of industries.

Coomaraswamy adds that a country’s energy policies can impact the macroeconomic outcomes of the economy in different aspects.

“It can impact the balance of payments through oil import-export receipts,”

“But,this can be reduced through greater efficiency or cheaper sources of power and energy (renewables, coal and natural gas), the risk and vulnerability associated with the balance of payments will be reduced,”

However he says the budget deficit has been the main source of instability in the system. It has pumped excess demand into the system and has fueled inflation and exerted pressure on the balance of payments.

“Sri Lanka has been a high fiscal deficit, high inflation, high interest rates and an overvalued currency economy,”

“This is diametrically the opposite of the characterization of the successful countries of East and South East Asia.’

Therefore, Coomaraswamy says it is important to raise the question whether a structure which increases competition can play a role in reducing energy costs for the benefit of the people and businesses.

Analysts have pointed out that government trying to insulate consumers through energy price controls is simply a complex deception, practiced on an unsophisticated population.

Whenever Sri Lanka subsidized power and petroleum with bank credit, the country was pushed into a balance of payments crisis which resulted in the rupee value depreciating.