ADB support for Sri Lanka is expanding as the country advances reforms in its electricity sector. With a newly approved policy loan and technical assistance, the Asian Development Bank aims to strengthen energy governance and accelerate sustainable growth.
ADB support for Sri Lanka strengthens budget stability and boosts renewable energy reforms
The Asian Development Bank has approved a major financing package to bolster Sri Lanka’s efforts to reform its power sector, improve financial stability and expand renewable energy generation. The support includes a 100 million US dollar policy-based loan combined with a 2.5 million dollar technical assistance grant, forming the second subprogram under ADB’s Power Sector Reforms and Financial Sustainability initiative. The latest funding underscores the institution’s confidence in Sri Lanka’s reform trajectory and the government’s commitment to modernizing its electricity infrastructure.
This new phase of the program is closely tied to the restructuring of the Ceylon Electricity Board, one of the most significant institutional transformations in recent years. The initiative will unbundle the CEB into several independent successor companies responsible for generation, transmission, system operations and distribution. The objective is to create a more transparent, efficient and financially viable power sector capable of meeting rising energy demands while supporting long-term economic stability.
ADB Country Director for Sri Lanka, Takafumi Kadono, emphasized that the country has made notable progress in stabilizing its economy despite ongoing challenges. He noted that a reliable and well-governed power sector is essential for maintaining this recovery momentum. According to Kadono, the reforms being implemented are expected to promote better governance, attract more private sector participation and accelerate the expansion of renewable energy sources, all of which are vital for sustainable and inclusive growth.
The program places strong emphasis on increasing renewable energy capacity and boosting competitiveness in the sector. By supporting the financial sustainability of electricity institutions, the initiative aims to create an environment where competitive procurement for large-scale renewable energy projects becomes standard practice. This approach aligns with Sri Lanka’s long-term target of significantly increasing renewable power in its national energy mix while reducing reliance on costly fossil fuel imports.
ADB support for Sri Lanka will also address long-standing financial vulnerabilities within the power sector. The program includes assistance for implementing cost-reflective tariffs, which have been a central component of the country’s broader fiscal reforms. In addition, the initiative supports a comprehensive debt restructuring plan for the Ceylon Electricity Board. These reforms are designed to allocate existing debts transparently across the new successor companies and strengthen their creditworthiness, enabling them to operate independently and sustainably.
The technical assistance grant of 2.5 million dollars will help ensure that the transition to unbundled power companies is both smooth and effective. It will fund capacity-building efforts, development of business strategies and creation of detailed power system development plans. These components are essential for enabling the new entities to function efficiently while meeting the technical and financial requirements expected of modern power utilities.
A notable feature of the program is its commitment to gender equality and social inclusion. The initiative incorporates measures to protect vulnerable communities during tariff adjustments and policy reforms. Lifeline tariffs will be maintained to ensure affordability for low-income households, while targeted support programs will help mitigate the social impact of necessary price changes and institutional restructuring. This ensures that the benefits of power sector modernization reach all segments of society without exacerbating existing inequalities.
The ADB highlighted that strengthening the governance and sustainability of Sri Lanka’s electricity sector is central to the country’s long-term economic recovery. With the combination of policy-based lending and technical assistance, the institution aims to reinforce the financial resilience of key energy entities while creating conditions that attract private investment. These reforms are expected to reduce operational losses, improve service delivery and support a more competitive and transparent energy market.
As Sri Lanka continues to navigate a difficult economic landscape, the latest phase of assistance reflects a broader international effort to help stabilize the country’s fiscal position while promoting growth-oriented reforms. The focus on renewable energy, financial restructuring and private sector participation positions the nation to better manage future energy challenges while aligning with global sustainability goals. Ultimately, the program aims to build an energy sector that is not only reliable and efficient but also fiscally responsible and socially inclusive.