Sri Lanka power utility making large losses: report

Mar 31, 2014 (LBO) - Sri Lanka's state-run Ceylon Electricity Board has lost over 24 billion rupees in the past quarter with low rainfall hitting hydro power, a media report said, raising concerns over credit expansion and exchange rate stability.

The Sunday Times newspaper quoting a letter written by CEB General Manager Shavi Fernando said CEB was estimated to have lost 8.0 billion rupees in January, 8.4 billion in February and 7.9 billion in March.
The CEB was seeking "more liquidity" and senior officers have been asked to tighten collections from customers including state institutions that have large unpaid bills.

CEB is thermal power generation bill has shot up amid a drought over the past few months.

State energy enterprises that subsidize energy do not pass on the actual cost of imported energy to their customers have in the past borrowed money saved by the people in state banks to cover their operational losses.

The sudden surge in unproductive credit requires an interest rate increase to either reduce loans taken by other customers for employment generating activities.

A rate hike also increases savings which in turn curbs non-energy consumption or both, economic analysts have pointed out.

But in developing countries like India and Sri Lanka, a state intervention to block market pricing of energy, is also followed by a state intervention by the Central Bank to resist an interest rates hike with money printing.

The CEB was seeking "more liquidity" and senior officers have been asked to tighten collections from customers including state institutions that have large unpaid bills.

CEB is thermal power generation bill has shot up amid a drought over the past few months.

State energy enterprises that subsidize energy do not pass on the actual cost of imported energy to their customers have in the past borrowed money saved by the people in state banks to cover their operational losses.

The sudden surge in unproductive credit requires an interest rate increase to either reduce loans taken by other customers for employment generating activities and increase savings which in turn curbs non-energy consumption or both, economic analysts have pointed out.

But in developing countries, when the elected ruling class blocks market pricing of energy interest rate increases are also resisted by monetary authorities who then print money to keep interest rates down.

The expanded demand then leads to a surge in imports and exchange rate pressure, which either results in foreign reserves losses if the exchange rate is defended or a depreciation of the currency or both.

A rise in energy prices to reflect the actual cost, slashes an equal amount of spending power from customers of energy (who now have to reduce their non-energy purchases by an equal amount) keeping the exchange rate and economy stable.

Market pricing energy can also reduce the need for interest rates to rise.

The expanded demand then leads to a surge in imports and exchange rate pressure, which either results in foreign reserves losses if the exchange rate is defended or a depreciation of the currency or both.
A rise in energy prices to reflect the actual cost, slashes an equal amount of spending power from customers of the utilities (who now have to reduce their non-energy purchases by an equal amount) keeping imports, the exchange rate and economy stable.

Market pricing energy can also reduce the need for interest rates to rise.

There was a 57 billion rupee increase in credit to state enterprises in December 2013, reversing a steady pay down of debt taken earlier and in January, there was no change in commercial bank lending to SOEs.

The CEB's credit backed energy subsidies, which were also financed by credit backed losses in Ceylon Petroleum Corporation in 2011 was the key trigger for the 2011/2012 balance of payments crisis, which made the rupee fall from 110 to the US dollars to 130.

Sri Lanka's private sector credit is now low as the country is still recovering from the last balance of payments crisis.

Analysts have said that the rupee is now also under pressure from dollar purchases by the Central Bank which has created large volumes of excess liquidity in money markets which were not permanently mopped up.

http://www.lankabusinessonline.com/news/sri-lanka-power-utility-making-large-losses:-report/915920044

Are we going to see another balance pf payment crisis thanks to CEB - again?

Can someone explain how a 40% increase in electricty prices have not helped? Did the world oil prices go up . I do not think. When they were producing Hydro power elec, they should have been making big profit ideally.

IS this another dirty game?

cseinvestor wrote:Can someone explain how a 40% increase in electricty prices have not helped? Did the world oil prices go up . I do not think. When they were producing Hydro power elec, they should have been making big profit ideally.

IS this another dirty game?

Definitely a fishy situation. We are going to end up in fish soup