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By Shirajiv Sirimane

A loan of US$ 130 million was released to the Sri Lankan government by the Asian Development Bank (ADB) to improve the country's power sector.

The agreement was signed last morning at the Finance Ministry between the Government of Sri Lanka and the ADB. A separate project agreement was also signed between the ADB and the Ceylon Electricity Board.(CEB)

ADB country Director John Cooney who signed the agreement said that this is the biggest loan to be awarded to Sri Lanka. "Earlier the ADB had released US$ 100 million for development."

US$ 60 million of this loan is to support the policy reforms in the sector. This includes the establishment of an independent regulatory and tariff setting mechanism, enhance sector efficiency and encourage private sector participation.

The remaining US$ 70 million will be used for expanding, modernising and rehabilitating the transmission and distribution systems and expanding the rural network. The program is expected to include financing 600 rural electrification sub projects. This will benefit around 112,500 customers and strengthen the CEB's existing distribution networks and reduce related line losses and provide transmission lines and substations to transport electricity from the generation station to the rural areas.

The CEB's expansion program will also cover a major part of the North East.

Cooney said that the ADB felt that the power generating sector is crucial for Sri Lanka and this loan would enable the country to improve this sector.

"This loan will support the government's efforts to reform the power sector and improve the quality, quantity and reliability of electricity supply.

It will address policy and investment issues as investment alone will not yield the desired results without policy changes."

He said that the first instalment of this loan would be granted to Sri Lanka early next year.

The Secretary to the Ministry of Finance, Charitha Ratwatte said that this will be a major breakthrough for Sri Lanka.

Secretary to the Ministry of Power and Energy Prof. K. K. Y. W. Perera said that this loan will help the Electricity Board to provide an efficient service. "We are expecting rapid development with this loan and it will also help to keep the tariff structure static."

General Manager Ceylon Electricity Board, D. C. Wijeratne said that the present financial situation of the CEB will improve due to this loan. "We are also in the process of recovering nearly Rs. 600 million due in arrears to the CEB mainly from the corporate sector."

He added that the past three years were the worst for hydro power generation in Sri Lanka. "The hydro generation per year is around 3,800 gegawatts during normal time. But in the past three years this dropped sharply to 2,700. This forced the CEB to purchase alternative power from the private sector."

He said that while the CEB does not incur any cost in generating hydro power the Board has to pay Rs. 7 per unit and sell it to the customer at a lower rate. This costs the CEB around Rs. 7 billion annually."

The Manager said that Kukulegama and other mini hydro power plants are expected to be operational next year which will help the CEB to reduce the costs in buying thermal power.

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