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Dark side of the energy picture in Sri Lanka

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The “rural energy crisis” has been receiving increasing attention from development policy makers because it affects the very survival of the vast majority of the world’s population, who live in the rural areas of the developing countries, and is also deeply inter-linked with the whole concept of sustainable development. The linkages between rural energy and sustainable development, however, need to be understood in the overall context of the energy situation in the developing countries. This also falls extremely well with SDG 7 of Agenda 2030 as an essential and a vital strategy of achieving the same.

The key message for policymakers is: Give wood energy a fair chance in the energy mix of your country in order to make the world a more sustainable and more environmentally friendly place.

Deviating from the conventional classification of energy as fuel sources which hides many development issues ,the Sri Lanka energy demand can be identified as consisting broadly of two major groups of energy (1) Centralized Commercial Energy consisting of electricity, fossil fuels and commercial renewable energy sources (2) Decentralized non commercial energy consisting of mainly biomass and other indigenous energy resources.

According to Sustainable Energy Authority (SEA) data, the largest component of energy demand in Sri Lanka in 2018 is for biomass energy amounting to 46.2.followed by 41% petroleum and 12.3% electricity (energy balance 2018). Biomass is also the main source of energy in household and industry comprising of 64..9% and 74..7 % respectively which highlights its importance as the life blood of the rural sector comprising of 81% of the total population and the industrial sector.

It is evident that burden of meeting the energy needs of group 1 has been carried out not by the government but by the rural people themselves led by the women to secure the sustenance and the livelihoods of the rural people for which government has not shown any appreciation or any interest. The mundane fact is that 191.4 PJ of energy amounting to 46.2% of the energy mix has never been the concern of the energy sector planning. What matters should not be the type of the energy source or fuel but the energy service provided which are the heat, light, mechanical and digital energy requirements.

While the energy sector should be congratulated for achieving 100% electrification in Sri Lanka which is a remarkable achievement, the present portfolios of Ministries in the energy sector focus only on Petroleum, Power and Renewable Energy Solar, Wind and Hydro Power Generation Projects Development . The major source of noncommercial biomass is overlooked . It is also observed that the term energy has been violated by identifying petroleum under the ministry of energy which is a misnomer which can create contradictions in policy matters as the term energy is used to encompass all energy resources.

The energy sector has incurred Rs 699 billion in foreign exchange almost 32% of the export earnings and an enormous expenditure to maintain a strong organizational infrastructure to cater for the commercial energy needs while neglecting the non commercial energy needs of the rural and estate poor.

This trend of depending on biomass has prevailed through out the last four decades and considering the present inequality in income distribution, it is likely to continue since affordability of modern fuels for the poor will not be a reality in the near future. This is evident from the fact that 30% of poorest get nine percent, the middle 40% get 29% and the richest 30% get 62% of the government income(Central Bank 2017 data) . A World Bank study states, at today’s prices that world LPG prices, regular users of LPG would likely need monthly household income in excess of US$350 and require at least 15 USD/month.

The Role of Liquefied Petroleum Gas in Reducing Energy https://openknowledge.worldbank.org › )

Nevertheless, presently there is a lack of focus on biomass energy by the government particularly due to the need for heavy focus on modern fuels for development of the country In contrast the important role played by biomass energy for the subsistence and economic development in the rural sector is not visible due to the decentralized and noncommercial nature of uncoordinated informal activities consisting of large number of stakeholders in the non-energy sector with a multitude of objectives not directly related to energy per se. Biomass energy is really not produced by the energy sector but a by product of activities carried out by the forestry, agriculture and plantation sectors which is not their main objective thus making biomass no one’s baby.

It is observed that this complication of uncoordinated, informal relationships and lack of insensitivity of the government which have contributed towards lack of governance within the energy sector in Sri Lanka have further isolated the low income rural sector to find their own solutions for survival. Non-cognizance on low-cost, improved biomass solutions has led to a scenario where biomass energy is negatively perceived with detrimental effects on sustainable development. It is totally unwelcoming to see that there is no appropriate mechanism devoted to the management of indigenous energy resources which still serves as the energy backbone of Sri Lanka.

The negative image of biomass, tends to be associated with deforestation, climate change under-development,  poverty and negative health effects. This image steers policy makers towards the replacement  of   biomass by other fuels, instead of improving  sustainability of the sector with integrated and holistic approaches.

In spite of the focus on alternatives, it is unlikely that biomass use will decrease in absolute terms over the coming decades. There is no evidence to show that firewood use is contributory factor to deforestation. Main four reasons for deforestation in Sri Lanka are encroachments due to agriculture, gem mining and settlements, infrastructure development projects, commercial agriculture ventures and several localized drivers like cattle grazing, cardamom cultivation and forest fires. (Kariyawasam, Ravindra, and Chinthka Rajapakse).

However, despite of the fact that, firewood is underestimated and ridiculed as a primitive fuel, the use of firewood by a majority of the population of Sri Lanka has not deprived but contributed towards the wellbeing of Sri Lanka in achieving many development indicators in moderation compared to many middle income countries. For an example according to world rankings, Sri Lanka’s rankings are Human Development Index 71, health 48, social capital 33, prosperity 84 and education 62. Moreover, a female born in Sri Lanka can expect to live 80.1 years (despite using firewood for cooking ) as oppose to 79 years in America). Infant Deaths/1000 in Sri Lanka is six, where it is six in America and 27 in India .

In the name of good governance and justice it is high time that the Ministry of Power and Renewable Energy (Sustainable Energy Authority) take action to avoid a looming disaster in the near future due to the informal nature of biomass supply and use of biomass is allowed to continue without inputs from the government which not only create social instability also hamper the efforts of achieving sustainable development goals.

The scope for the government is to facilitate the availability of supply, provide low cost technology support for efficient use by improving access to ventilation and efficient use through improved stoves and mitigate negative impacts on health and climate as alleged by the international community. Nearly eight million tons of firewood is required annually for cooking and livelihoods and four million tons of firewood for the industrial sector. Each house would require nearly two tons/year. Meeting this target would require the coordination and integration of the various stakeholder activities already providing informal facilitation in unofficial ways.

Although negative perceptions of biomass energy are widespread, biomass is not necessarily an unsustainable or backward fuel. Sustainability depends on the practices applied in the value chain; for example forest management techniques and the efficiency of conversion and use. These commonly held misconceptions tend to associate biomass fuels with deforestation, indoor air pollution and underdevelopment.(European Union Energy Initiative and GIZ, Germany ). http://www.euei-pdf.org/fr/node/3880.

In the name of governance in the energy sector in Sri Lanka, the objective of this article is to request the Sustainable Energy Authority which has been given the mandate to promote renewable energy (not only commercial energy) to take the leadership and initiative to invite the relevant stakeholders, donors, NGOs for a consultative meeting with a view to identify stakeholders and cross cutting activities, linkages and capacity and make aware the importance of rural sustainable energy interventions which needs the formation of a network of organizations to be established under the local government ministry facilitated by the sustainable energy authority comprising of specially dedicated staff to biomass energy development.

R.M.Amerasekera. Eng

Executive Director, Integrated Development Association (IDEA)

Energy Advisor to Former Minister of Local Government Admiral Sarath Weerasekara

Project Manager, National Fuel Wood Conservation Programme

Electrical Engineer (Alternative Energy Development Unit, CEB)

Retired Director, Sustainable Energy Authority

Short term Consultant to the UNDP(Sudan), World Bank and FAO

Recipient of First Ever Sri Lanka Energy Efficiency Award(2015), Awarded by HE the President

for bringing sustainable energy solutions to people

Recipient of Mohan Munasingha Award (1985) for Energy Conservation Efforts

Nominee for World Clean Energy Award(2007)



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Significance of repatriation and conversion of export proceeds for external sector stability and overall financial system stability

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Sri Lanka’s merchandise export sector has shown a notable improvement in 2021 compared to the pandemic-affected 2020. As per the latest Customs data, export earnings have averaged US dollars 985 million during the eight months ending August 2021 compared to a monthly average of US dollars 837 million in 2020, while the average earnings have amounted to US dollars 1,064 million during June-August 2021. This is an appreciable development as the merchandise export sector (comprising diverse products) is the largest foreign exchange earner in most countries, including Sri Lanka.

Sri Lanka has had a trade deficit each year since 1977, and the gap between merchandise imports and exports is typically financed by other inflows to the external current account (such as tourism and other services inflows as well as workers’ remittances), and financial inflows (such as investments and borrowing).

In this background, some recent developments in the foreign exchange market have raised several concerns, particularly as some of these typical avenues of foreign exchange inflows have been affected due to pandemic-related pressures, as explained below:

a) Compared to the monthly average exports as reported by Customs (goods flow) of US dollars 985 million during the eight months ending August 2021, the monthly average repatriation of export proceeds during July/August 2021 has been US dollars 640 million as reported by banks (financial flow). Accordingly, there has been a significant gap of US dollars 345 million between these two figures. This observation therefore, raises the serious question as to whether exporters comply with the regulation on 100 per cent repatriation of export proceeds.

b) It also appears that due to an undue speculation on exchange rate movements, there has been a reluctance to convert export earnings during the period from January 2020 to July 2021, thereby limiting inflows to the domestic foreign exchange market, which situation has then resulted in a buildup of foreign currency deposit balances with the banking sector by a significant US dollars 1.9 billion. In addition, with low rupee interest rates, some exporters have found it more lucrative to borrow and import to meet their input requirements, leading to further tension in the domestic market.

c) As per the data available, it would also be noted that if there had been a 100 per cent repatriation and 100 per cent conversion of export proceeds, the monthly export foreign exchange flow into the domestic market would have been US dollars 985 million, and with the average expenditure on imports of US dollars 1,670 million, that would have resulted in a monthly average gap of US dollars 685 million. This could have been easily financed using other foreign exchange inflows into the country.

d) Based on the above past statistics in general, and the experience during July/August 2021 in particular, the monthly average gap between the conversions of export proceeds with an incomplete repatriation and expenditure on imports has been quite alarming.

It would also be fair to state that there is a necessity for a country to ensure that the foreign exchange generated through export activities are duly repatriated into the country and converted into its currency. In fact, many emerging market economies have repatriation and conversion requirements imposed on merchandise and services exports. Country experiences vary, and over time, with the buildup of a country’s foreign exchange reserves through such non-debt inflows, countries have also gradually relaxed these requirements. Regional economies such as Bangladesh, India, Indonesia, Malaysia, Nepal, Pakistan, and Thailand have export proceeds repatriation requirements currently in place varying from 3 months to 2 years of the export. Bangladesh, India, Pakistan and Thailand have repatriation requirements on both goods and services export proceeds, while in Nepal, Malaysia and Indonesia, the repatriation requirement is only applicable on goods exports. Bangladesh, India, Pakistan and Thailand have rules on conversion to respective local currencies in different percentages based on nature and the amount of repatriated export proceeds and their utilisation. Such repatriation and conversion requirements ensure the fulfillment of the demand for foreign currency, including intermediate and investment goods imports directly required by the export sector, as well as essential fuel and medical requirements of the country, which are indirect inputs to all sectors including the export sector.

Therefore, it would be reasonable for the Government (which supports the export sector through lower taxes and numerous other incentives) and the Central Bank (which is expected to deliver price and economic stability as well as financial system stability) to take steps to ensure the complete repatriation of export proceeds within a reasonable period and the conversion of inflows of export proceeds into the local currency, including the proceeds already accumulated in exporters’ accounts, so that the true purpose of exports is realised.

As would be well appreciated, an export would realise its objective only when it finally culminates in the flow of foreign exchange that is generated by the export into the country’s financial system in its local currency. That objective would obviously not be fulfilled if the final conversion of export proceeds into local currency does not take place. Accordingly, steps must be taken to strengthen the systems to ensure monitoring and to implement measures that lead to this objective. It is only then that the gap between the foreign exchange liquidity provided through exports and the foreign exchange liquidity demand for imports would reduce to the level as published in the Central Bank’s own reports.

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LOLC and Expolanka drive bourse along bullish path

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By Hiran H.Senewiratne

CSE trading activities initially yesterday were extremely bullish and were driven by two leading entities/counters, LOLC Group and Expolanka. The reason for the LOLC Group to perform well in the stock market was because LOLC (Ceylon) Ltd. that was established in 2018, announced a debenture issue for September 29 to raise Rs. 1 billion, stock market analysts said.

LOLC (Ceylon) Ltd. is planning to purchase all three finance companies under the LOLC Group to make them function as one entity in the future. Initially they will transfer 55 percent of LOLC Development Finance (NIFL) from LOLC Group. Part of the money raised from the debenture issue and the balance two companies, namely LOLC Finance Plc and Commercial Leasing Plc, will join the company in the future, market analysts added.

Meanwhile, E M L Consultants Limited commenced trading on the Empower Board of the CSE yesterday. The company listed 90,900,000 Ordinary Voting Shares and has been classified under the Industry Group “2020 – Commercial & Professional Services”. With the commencement of the very first day of trading its share price appreciated by 690 percent. Its shares started trading at Rs 2 and at the end of the day they shot up to Rs. 15.80.

Amid those developments both indices moved upwards. The All Share Price Index went up by 364 points and S and P SL20 rose by 79.6 points. Turnover stood at Rs 6.7 billion with four crossings. Those crossings were reported in JKH, which crossed 5.7 million shares to the tune of Rs 771 million and its shares were traded at Rs 136, Sampath Bank 3.6 million shares crossed for Rs 182 million, its shares traded at Rs 49.50, LMF 250,000 shares crossed for Rs 45 million with its shares fetching Rs. 180 and Nestle 16000 shares crossed for Rs 20.1 million, its shares fetching Rs. 1250.

In the retail market, five companies that mainly contributed to the turnover were; Expolanka Rs. 2.5 billion (13.5 million shares traded), Browns Investments Rs 653 million (67.6 million shares traded), LOLC Finance Rs 411 million (43.7 million shares traded), LOLC Holdings

Rs 402.9 million (730,000 shares traded) and Commercial Leasing Rs 204.4 million (7.5 million shares traded). During the day 202.7 million share volumes changed hands in 38000 transactions.

Asiri Hospitals have topped the league in the first-ever ranking of listed entities in Sri Lanka in an exercise for the year ended 31 March 2021, done by K Seeds Investments. All six listed hospital companies were assessed on Net Profit Margin, EBIT Margin, Return on Equity, Return on Assets Debt to Equity Ratio, Current Ratio, Revenue Growth and Net Profit Growth.

On that basis, Asiri Surgical Hospital has come on top, followed by Asiri Hospital Holdings, Ceylon Hospitals (Durdans), Nawaloka Hospitals, Lanka Hospitals, and Singhe Hospitals.

The current USD to LKR exchange rate is Rs. 200.04 per US dollar.

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‘Government going to the financial rescue of MSMEs’

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By Hiran H .Senewiratne

The Cabinet took the initiative to provide financial assistance and support to micro, small and medium enterprise (MSME) industrialists who are struggling to do business due to adverse impacts of the COVID pandemic, the Minister of Industry and Commerce Wimal Weerawansa said.

“For that matter I have presented a Cabinet proposal titled ‘Difficulties Faced by Small and Medium Enterprises’. The proposal made to the Cabinet meeting held two weeks ago was approved with few amendments. We are ready to publish all the contents in another week, Weerawansa said during a webinar held last Saturday evening.

The event was organized by the Sri Lanka Chamber of Small and Medium Industries (SLCSMI) and was powered by the Institute of Money and Entrepreneurship Development (IMED). The event was titled ‘Empowering MSMEs to embrace the new normal’.

Weerawansa said this initiative will provide financial relief to SME industrialists who are faced with various difficulties amid the pandemic.

“These entrepreneurs need a little financial support to continue with their business activities that were impacted by the pandemic, he said, adding that all countries are faced with economic difficulties.

Weerawansa added: “The entire world is faced with a most unprecedented pandemic and all economies are faced with different challenges. Economic activities have been impacted severely and all industries are making every effort to stay afloat in these uncertain times.

“A special Guarantee Fund is now established under the Finance Ministry to support inventors.

“The Guarantee Fund is available for industrialists who can invent market-winning products, but do not have the capital to do so mainly because they are unable to obtain bank loans.

“The fund was established with the support of the Asian Development Bank (ADB).

“The Guarantee Fund was a 2020 budget proposal, which was implemented by Prime Minister and former Finance Minister Mahinda Rajapaksa.

“The ‘Empowering of MSMEs to embrace the new normal’ initiative by the SLCSMI which helps to build the mindset of entrepreneurs and industrialists is commendable.

“If the mindset breaks down, entrepreneurs will not be able to overcome the challenges despite their financial capabilities. That encouragement is essential at this moment – to revitalize a broken-minded entrepreneur, an industrialist, by pointing out their weaknesses and assuring them with a ‘you can’ mindset to overcome the challenges. The Chamber has stepped in to fill a key void in the industry.”

President, SLCSMI Prof Rohan De Silva said that the SME sector contributed more than 55 percent to 65 percent to the GDP. Therefore, to support this sector is the need of the hour, while the country’s economy is in a serious state.

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