Sri Lanka’s power sector reforms must strike a balance between cost-reflective pricing, cost recovery, renewable energy expansion, and affordability, Members of Parliament stressed during a recent discussion with the International Monetary Fund (IMF) Capacity Development Mission.

The discussion, held under the IMF’s Extended Fund Facility (EEF) programme, focused on reviewing the electricity tariff methodology, which must be finalized by November 2025. Officials from Parliament committees, ministries, the Ceylon Electricity Board, and the Public Utilities Commission of Sri Lanka participated, alongside IMF representatives.

Lawmakers emphasized that cost recovery ensures the sector covers total expenditure, prevents inefficiencies, and attracts investment, while cost reflectiveness ensures consumers are charged fairly for their actual usage, reducing cross-subsidies. Without cost recovery, inefficiencies multiply and investment becomes harder to secure, participants warned.

The country’s renewable energy target of 70% by 2030 was a central theme. Experts noted that achieving this goal requires major investment in solar, wind, and hydro projects, along with storage and technologies like green hydrogen. While thermal power remains in use, it was described as “super expensive” and vulnerable to global price fluctuations, unlike renewables which are becoming increasingly competitive.

The volatility of generation costs was flagged as a risk to both financial stability and consumers. Accurate forecasting and predictable tariff structures were seen as essential to avoid sudden cost spikes and ensure least-cost, environmentally friendly energy generation.

MPs also stressed the need for targeted subsidies to protect vulnerable households, support for workers impacted by restructuring, and efficiency measures that deliver fair outcomes for end-users.

Concerns were raised about weak governance, incomplete cost data, and lack of transparency in Power Purchase Agreements (PPAs). Stronger oversight and regulatory independence were deemed necessary for an effective tariff framework.

It was agreed that tariff reform cannot be treated as merely a technical process. Instead, it must align with broader policy goals: ensuring financial viability, accelerating the shift to renewable energy, safeguarding vulnerable communities, and strengthening accountability across the power sector.