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Debts CEB owed to China Exim Bank transferred to Govt. ahead of restructuring
View(s):Selected foreign currency debts obtained from the China Exim Bank and on the Ceylon Electricity Board’s (CEB) balance sheet have been transferred to the Sri Lanka Government’s balance sheet.
This includes an outstanding loan balance of US$ 591.4mn (Rs. 214.7bn), as of end-December 2022, obtained to build the Lakvijaya coal power plant.
These facts are revealed in a Cabinet paper on State-owned enterprise (SOE) restructuring recently submitted by the Ministry of Finance, Economic Stabilisation and National Policies. The transfer of these and other SOE debts to the Government’s accounts took place last year, in anticipation for restructuring and on the International Monetary Fund’s (IMF) requirements.
Action was also taken to convert debts amounting to Rs. 146.5bn, recorded as “sub-loans” in the CEB financial statements, into equity investments by the Government in CEB as of end-December 2022. (An equity investment is money that is invested in a company by purchasing its shares).
This debt conversion improved the financial position of the CEB, the Cabinet paper, which was approved, states. But as the CEB and independent power producers, etc., owed the Ceylon Petroleum Corporation (CPC) around Rs. 129bn on fuel purchases for power generation, “it is appropriate to arrange a cross-settlement mechanism for the long-outstanding debt to strengthen the CEB’s balance sheet through a fresh capital investment of Rs. 129bn”, it proposes.
The Cabinet has, thus, approved for the General Treasury to make further equity investments of Rs 129bn into the CEB to allow it to settle its dues to the CPC and IPPs.
The Cabinet paper maintains that the CEB’s balance sheet was adversely affected by the past non-adaptation of a cost-reflective pricing methodology. “This has hindered the required investments for generation diversification and transmission development,” it states.
The biannual cost-reflective price adjustment for CEB was adopted “to make the entity financially viable” and will continue with the objective of “getting rid of non-commercial-based service delivery”.
Significantly, the Cabinet paper points out that, although the electricity tariff was increased by 75% in August last year, the CEB incurred an operating loss of Rs. 126.8bn for 2022 “due to the delayed and limited tariff increase being inadequate to fully compensate for the significant increase in generation cost”.
“Even though the cost recovery tariff is now being implemented, the accumulated legacy payables cannot be settled with immediate effect,” it warns. “Therefore, additional restructuring of the CEB balance sheet is required.”
The Ministry of Power and Energy is restructuring the CEB’s operations by unbundling power generation, transmission and distribution with private sector participation.
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