Sri Lanka electricity price hike proposals have resurfaced as the Ceylon Electricity Board seeks regulatory approval for higher tariffs, citing a weaker rupee and fuel cost assumptions. This comes even as global oil and coal prices declined through most of 2025.
Sri Lanka electricity price hike sought as rupee weakness offsets global energy declines
Sri Lanka’s Ceylon Electricity Board has requested an 11 percent increase in electricity tariffs, arguing that currency depreciation and fuel price assumptions have raised generation costs. The application, submitted in December 2025, is based on an exchange rate of 308.65 rupees to the US dollar, compared with 303.33 used in a similar request made in May, highlighting the impact of the rupee’s decline on domestic pricing models.
The request has drawn scrutiny because it coincides with a period of easing global energy prices. International crude oil and coal markets softened during 2025 amid broadly deflationary monetary conditions in advanced economies. Despite this trend, Sri Lankan electricity consumers are facing higher projected costs due largely to currency movements and administered fuel pricing, rather than underlying commodity inflation.
Global crude oil prices showed a clear downward trajectory over the year. Sri Lanka’s crude import costs declined from around 76 dollars a barrel in January and 75 dollars in May to about 72 dollars by December. Similarly, Singapore gas oil prices fell sharply toward the end of the year, easing from above 95 dollars to just over 82 dollars in December, after touching even lower levels mid-year as refinery bottlenecks eased.
Coal prices followed a similar pattern. The Indonesian coal index dropped steadily through 2025, falling from above 103 in January to around 94 by December. Notably, the CEB’s projected coal prices for early 2026 are lower than those used in its earlier tariff submission that was rejected by the regulator, raising questions about the necessity of higher electricity charges at this juncture.
Despite these global trends, the CEB’s cost assumptions reflect higher local fuel prices. Diesel prices used in the tariff calculation rose from 274 rupees per litre in May to 277 rupees for 2026 projections. Actual retail diesel prices have since increased further, reaching 279 rupees in January, driven largely by the depreciating rupee rather than international market conditions. Furnace oil and naphtha prices have also risen by about 10 rupees per litre each, adding to generation costs.
Analysts warn that the proposed Sri Lanka electricity price hike risks undermining the government’s stated objective of reducing electricity generation costs to around 25 rupees per unit, a key pledge tied to economic reform and electoral commitments. Currency-driven increases in administered prices, they argue, complicate fiscal planning and erode public confidence, particularly when global input costs are easing.
The tariff request also highlights deeper structural issues in Sri Lanka’s monetary and exchange rate framework. Persistent currency depreciation has weakened the rupee’s role as a reliable unit of account and standard of deferred payment. As a result, even renewable energy investors increasingly seek tariffs denominated in US dollars to protect returns, transferring exchange rate risk to the broader economy and consumers.
Historically, Sri Lanka’s struggles with exchange rate instability have carried significant economic and political consequences. Following shifts in global monetary arrangements in the late twentieth century, repeated episodes of depreciation pushed up inflation, strained public finances, and contributed to social unrest. Currency weakness has often translated directly into higher prices for essential goods and services, including electricity, fuel, food, and transport.
The current episode reflects similar dynamics. While higher energy prices generated by currency depreciation may help authorities meet inflation targets, they simultaneously undermine household finances and the broader economic program. Rising utility tariffs reduce disposable income, increase business costs, and risk slowing investment, particularly in energy-intensive sectors.
Economists point out that exchange rate outcomes are not purely market-driven but are shaped by the central bank’s operating framework. Depreciation tends to occur when exchange rate objectives conflict with domestic monetary policy, especially during periods of rate cuts aimed at stimulating credit growth. In 2025, analysts attribute much of the rupee’s weakness to aggressive foreign exchange purchases that exceeded the pace of liquidity absorption.
There have been modest improvements in monetary operations more recently. Allowing interbank rates to rise and returning to a scarce reserve regime have helped stabilize short-term conditions. However, the scope for deflationary measures remains limited, relying mainly on government bond coupons and the unwinding of selected financial instruments.
Against this backdrop, the proposed electricity tariff increase illustrates how macroeconomic policy choices filter down to everyday costs. Even when global markets move in consumers’ favor, domestic price pressures can persist if currency stability is not maintained. For regulators, the challenge will be balancing the financial viability of the power sector with affordability and economic recovery.