OtherPublic Expenditure Review

RMA was assigned to conduct the power sector analysis of the Public Expenditure Review (PER), covering the following two areas in the electricity sector of Sri Lanka.

(a) Subsidy beneficiary incidence analysis
(b) Benchmarking the efficiency of Ceylon Electricity Board (CEB), the national electricity utility

The study examined the flow of subsidies into the electricity sector from the rest of the economy by way of direct grants, investment tax concessions, concessionary loans, rescheduled loans, debt moratorium and fuel tax concessions. The study then examined the flow of such direct and indirect subsidies to the customers, particularly those who are the most disadvantaged, by way of limited access to electricity. In conducting this study, the economic and financial costs of electricity was calculated using marginal costing and revenue requirement methods, and the subsidies as well as cross-subsidies to each class of customer were estimated for year 2005. The calculation of marginal costs were done using CEB’s generation planning models, and the outputs of transmission and distribution planning models.

Another component of the study was the benchmarking of the performance of Ceylon Electricity Board. CEB has long been a successful state-owned utility, but since 1999, owing to its inability to implement cheaper generation projects, and the electricity prices not keeping pace with the increasing costs, CEB has been reporting losses. The study benchmarked the technical and financial performance of CEB against a more successful utility in the Asian region to learn the strengths and weaknesses of the approach of managing CEB, and set guidelines for its future operations.