CEB losses mount to Rs.60 bln in 2012–CB says
View(s):By Sachin Parathalingam
Last year was a turbulent one for the energy sector with the weakening of the financial position of state monopolies such as the Ceylon Electricity (CEB) and the Ceylon Petroleum Corporation (CPC).
This, according to the recently released 2012 annual report of the Central Bank (CB), was accompanied by profitability issues in the airline industry, with both SriLankan Airlines (SLA), the national carrier, and state-owned budget carrier Mihin Lanka continuing to incur operational losses.
The report cited an array of challenges to Sri Lanka’s energy sector in 2012 including price volatility in the crude oil market and unfavorable drought conditions which severely hurt profitability in the energy sector. The depreciation of the Sri Lankan Rupee following the CB’s decision to limit artificially inflating the currency, in addition to the economic sanctions imposed by the US on Iran were also contributing factors to Sri Lanka’s energy sector troubles. Continuous loans taken by both CEB and CPC exerted further pressure on the banking sector as outstanding liabilities increase by 52.6 per cent to Rs.245 billion at then end of 2012.
Contrastingly the outlook for the aviation sector looked more promising but by no means positive. The civil aviation sector recorded positive growth in 2012 as per the report as Sri Lanka continues to reap the benefits of tourism post-war, but such progress was negated by the poor financial performance of the industry.
CEB losses
CEB recorded an operational loss of Rs. 61.2 billion for 2012 as per unaudited data, an increase of approximately Rs 40 billion compared to the preceding year.
The CB report stressed prevailing drought conditions from June-October 2012 as the main contributor to such significant loss-making. Poor rainfall throughout the year depleted the water reservoir levels to their lowest since 2001. This, accompanied by repeated power interruptions at the Norochcholai power plant necessitated the use of expensive thermal power generation in the first 10 months of 2012. Although 2012 saw a revision in fuel prices and a re-imposition of the Fuel Adjustment Charges (FAC) in February, the financial benefits expected were negated by the severity of the drought conditions. This ultimately translated into a sharp increase in the average cost of generating electricity.
The CEB’s average loss per electricity unit at selling point amounted to Rs.6.48, according to the report.
The report mentioned the need for technological innovation and the build up of adequate storage facilities as measures to revert the industry back to profitability.
CPC losses at Rs. 89 bln
The CB report indicates a further erosion of CPC’s financial position for 2012 as financial statements reflect operational losses of 89 billion for 2012 compared to Rs. 94.5 billion in 2011.
The report cited the political instability of the’ Arab Uprising’ as contributing factors with price volatility in the crude oil market and supply uncertainties exerting upward pressure on petroleum prices. The average price of crude oil imported by CPC increased by 5 per cent during 2012 magnifying the total oil import bill by 4.9 per cent to US$ 4.9 billion. US and EU sanctions on Iranian oil imports further exacerbated CPC’s losses by forcing the company to switch to high priced crude oil sources in order to meet the shortfall supplies. The depreciation of the Rupee also added to the costs of importing crude oil and the provision of furnace oil at a highly subsidized rate to CEB adversely impacted the financials of CPC.
The damning findings in the CB report come amidst calls from the IMF to reform the two energy giants. John Nelmes, who headed the IMF delegation to Sri Lanka in February, stressed the need for an “automatic price adjustment formulae” in order to curb the losses of CEB and CPC. The IMF also called on the government to revert to less-expensive power generation methods as part of reforming the energy sector.
Aviation sector
“The financial performance of the aviation sector remained weak in 2012,” the CB report said. Sri Lankan Airlines experienced an operating loss of Rs.20.5 billion due to intense competitition from emerging low-cost carriers and fuel price volatility. Mihin Lanka’s losses approximately doubled from the preceding year standing at Rs. 1 billion at 2012 compared to 455 million in 2011.
Some light did shine on the civil aviation industry which experienced moderate growth in 2012. Bandaranaike International Airport (BIA) recorded a 15 per cent increase in the number of passengers handled as Sri Lanka gradually shapes into a prime tourist destination. The total number of passenger aircrafts handled by BIA stood at 48,416 indicating a growth of 11 per cent.
Furthermore Sri Lankan Air Taxi increased its number of destinations from 13-15 during the year in order to cater to increasing demand for leisure as per-capita income figures continue to rise.
The report further noted “Sri Lanka’s strategic location will enable it to reap the benefits of future growth in international cargo handling” adding that there is “vast potential to expand the civil aviation industry as Sri Lanka emerges as an aviation hub”.
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