Sri Lanka takes action to accelerate investor laws as Adani Group waits

The Adani Group expanded its business activities in Sri Lanka in 2021, venturing into the port and renewable energy sectors.

However, it has encountered significant challenges in establishing its presence in the renewable energy industry. These obstacles primarily stem from the Ceylon Electricity Board’s (CEB) anti-private sector stance and internal issues within the organisation.

The CEB’s extensive politicisation has impeded its ability to effectively support the incorporation of private entities into the renewable energy market. Both the Adani Group and other renewable energy investors are eagerly awaiting the drafting of the Power Purchase Agreement (PPA) by the CEB, as it is a crucial step in finalising their renewable energy projects.

The delay in drafting the PPA is not unique to Adani, but affects other renewable energy investors as well.

Other prominent business figures who have visited the Port City are facing similar challenges due to the absence of well-prepared laws under the Business of Strategic Importance (BSI) framework.

State minister Dilum Amunugama recently acknowledged this issue and assured that significant efforts are being made by the oversight committee to address these concerns by drafting new investment laws.

These new regulations aim to rectify outdated rules that hinder investment opportunities, even when concessions are available. The oversight committee is actively working to resolve various issues, including the PPA and the BSI regulations.

The delay in the development of renewable energy can be attributed to several factors, with one of the most pressing issues being the CEB’s failure to make payments to the renewable energy sector. This lack of financial support has discouraged new investors from entering the market. Numerous projects associated with the Ceylon Electricity Board have been waiting for approval for five to six years now, according to the state minister.

To realise Sri Lanka’s rising energy demand and attain the aim of 70 per cent installed renewable capacity, the power industry will need more money and will rely more on the private sector.

Currently, depending on weather conditions, the non-conventional renewable energy sector supplies 15-20 per cent of Sri Lanka’s daily electricity requirement. However, due to the failure to connect all power plants to the system control, this large contribution is not adequately reflected in the daily generating report published on the CEB’s website.

The CEB’s involvement in purchasing renewable energy from private entities has faced challenges due to political entanglements and anti-privatisation sentiments in Sri Lanka.

As of the first quarter of 2022, the CEB had reported a loss of Rs 65 billion. Additionally, the CEB union has initiated strikes over various issues, including government tax policies and the recent increase in electricity tariffs. These strikes and disputes have caused further delays for investors like the Adani Group.

Furthermore, some CEB engineers have exhibited a negative attitude towards renewable energy, despite being informed of its importance. The CEB now claims that it can incorporate an additional 2,500 MW of energy by 2026 without making changes to the current grid, which is a significant development.

However, the power sector operates at a slow pace, and finalising projects takes a considerable amount of time.

Five months have already passed since the Sri Lankan government granted approval for the commissioning of two wind power plants by Adani Green Energy Limited, with a total investment of $442 million.

They first approached in 2021 and met the previous President before he was ousted. The Board of Investment expected these wind power plants to become operational within two years and be integrated into the country’s power grid by 2025.

Adani has already made a significant upfront payment for this project, but the Power Purchase Agreement (PPA) is still pending.

The state Minister of Investment Promotion has acknowledged the delays faced by the Adani Group’s renewable energy project, attributing the primary reason to ongoing discussions regarding the PPA with the CEB.

Sri Lanka still needs to address significant systemic issues such as corruption, nepotism, and political dominance, which hinder sustainable development and economic growth.

Resolving these issues is crucial to create an investor-friendly environment. Currently, Sri Lanka faces delays in paperwork and bureaucratic processes, which impede business operations. Minister Amunugama has acknowledged the need to streamline processes and criticized the ineffectiveness of the Board of Investment’s one-stop shop.

Recently, Janaka Ratnayake, the Chairman of the Public Utilities Commission of Sri Lanka (PUCSL), raised concerns about high tariffs and suggested ways to reduce the cost of power.

However, the government responded firmly by removing him from his position through a parliamentary vote utilising a 2/3 majority. While Ratnayake’s departure has created a void, it highlights the need for a comprehensive overhaul of the energy sector.

The CEB will now operate directly under the Energy Minister, who has faced criticism for some of his actions in the energy sector.

The timeline for Adani to commence its renewable energy projects in Sri Lanka depends on the terms offered by the Sri Lankan government through the PPA. Timely completion of the PPA is crucial to establish a mutually-beneficial arrangement.

If renewable energy is considered the way forward, policymakers must expedite the necessary groundwork.

Streamlining processes, facilitating regulatory frameworks, and providing adequate support will accelerate the transition to renewable energy sources and enable a sustainable future.

The urgency to act underscores the importance of prioritising and expediting the necessary groundwork to fully embrace renewable energy.

In contrast to Sri Lanka’s challenges, the state of Telangana has implemented a highly-attractive business framework for foreign investors. A notable example is Apple’s partnership with Foxconn, where they invested $500 million in Telangana, leading to the creation of 25,000 direct jobs.

Telangana’s government introduced the TS-iPASS (TelanganaState Industrial Project Approval and Self Certification System) Act, which simplifies the approval process for entrepreneurs. Under this Act, approvals are granted at a single-point within specified time limits, based on self-certification provided by the entrepreneurs.

Telangana, with its population of 38.08 million, has emerged as a shining example of successfully attracting and boosting businesses from around the world. The state has achieved milestones in the food processing industry, with over 40,000 food processing units valued at an estimated $32.75 billion.

Moreover, Telangana has established four major food parks worth $67.37 million and implemented seven integrated cold chain projects worth $28.48 million. This impressive growth can be attributed to significant investments made by major multinational companies in Telangana’s food processing sector.

Companies such as Coca-Cola, Hatsun Agro Products, Plant Lipids, and ITC Limited have chosen to invest in this industry within the state. These investments are a testament to the favorable business environment, infrastructure, and government support provided by Telangana.

Any further delays in finalising the PPA will not only burden the Sri Lankan population with additional energy costs, but also set a negative precedent for international investors. Sri Lanka must expedite its plans to attract investors, considering that the civil war ended back in 2009, and the time frame for progress has been quite extensive.