The Ceylon Electricity Board (CEB) reported a staggering loss of Rs18 billion in the first quarter of 2025, following a regulatory-mandated electricity tariff reduction that undercut the utility’s proposed rate adjustment.
The steep tariff cut, which came in below CEB’s suggested 3% reduction, triggered a significant revenue decline and delayed a key International Monetary Fund (IMF) program that mandates cost-reflective pricing for public utilities. This requirement is a cornerstone of the IMF’s economic stabilization framework, aimed at curbing further debt accumulation and ensuring financial sustainability.
Revenue Plunge and Soaring Costs
In the March quarter, CEB’s revenue plummeted by 44% year-on-year to Rs93.9 billion, while the cost of sales rose 6.8% to Rs112.1 billion. The result was a gross loss of Rs18.2 billion, a stark reversal from the Rs62.7 billion gross profit posted in the same period last year, when higher tariffs and a sharply appreciated rupee supported the utility’s balance sheet.
While the utility recorded Rs3.9 billion in other income for the quarter, it wasn’t enough to offset the mounting losses. The operating loss, after factoring in other income, stood at Rs15.5 billion. Finance costs also fell to Rs3.3 billion from Rs7.6 billion, thanks to debt repayments made using profits and capital gains from 2024, including a Rs26 billion gain from the sale of a stake in a power plant.
At the group level, which includes stakes in subsidiaries such as LTL Holdings, the net loss amounted to Rs16.9 billion.
Renewables, IMF Targets, and the Grid Challenge
The financial strain comes at a critical juncture, as the CEB seeks to modernize its grid infrastructure to handle a growing share of intermittent renewable energy. These renewables—such as solar and wind—have priority feed-in status and cannot be curtailed during periods of low demand, unlike conventional private power plants.
Plans to build pump storage facilities to manage these fluctuations are underway, but external financing from institutions like the Asian Development Bank hinges on demonstrating profitability and maintaining cost-reflective tariffs.
The IMF program has been jeopardized by regulatory decisions seen as short-sighted, with previous tariff cuts in 2023 also leading to reversals during dry weather. The IMF requires that utilities avoid pricing models that rely on uncertain factors such as rainfall to meet generation targets.
Macro Risks and Monetary Fallout
The CEB’s losses are not just a concern for energy sector reform but pose a broader threat to fiscal and monetary stability. State-owned enterprise (SOE) deficits have historically led to borrowing from state banks, prompting the central bank to inject liquidity via money printing to suppress interest rates under its flexible inflation targeting regime. This, in turn, leads to currency depreciation, which inflates the cost of energy imports and deepens the financial woes of both the CEB and the Ceylon Petroleum Corporation.
Although electricity generation costs have come down—thanks to a stronger rupee, deflationary monetary policy by the Central Bank of Sri Lanka, and falling global energy prices influenced by the US Federal Reserve’s tightening—regulatory decisions continue to overshadow financial recovery efforts.