Sri Lanka’s power sector has struggled for decades to meet rising demand and to provide efficient and cost-effective electricity services. Around 20% of households still lack electricity access and the government-owned Ceylon Electricity Board (CEB), is weighed down with debt, crimping its ability to fund new infrastructure or attract private investment. In addition, the share of thermal power in the power generation mix has surged dramatically from 1% of the total in 1986 to 58% in 2008.

The Government has now launched a 10-year development plan to address these constraints and the project will support the CEB and the Lanka Electricity Company to improve coverage and service efficiency. The initiatives will include modernizing and upgrading the country’s transmission system and launching a demand-side management program for public lighting. Support for renewable energy will add 200 MW of hydro-generated electricity to the national grid and encourage private sector investment in the industry. At least 60,000 poor households will be connected to electricity services through micro-credit support.

“The access for the poor component will directly benefit the Eastern Province which has been severely affected by the conflict (between the Government and the Liberation Tigers of Tamil Eelam) as well as other poor regions,” says Tomoyuki Kimura, Principal Energy Specialist with ADB’s South Asia Department.

The loans cover 85% of the project cost of $188.2 million. The demand-side management initiative will receive $2.2 million from ADB’s Climate Change Fund. The OCR loan has a 25-year term, including a grace period of five years, with the interest rate set in accordance with ADB’s London interbank offered rate. The ADF loan of 32-years will carry an interest charge of 1.0% per annum during the 8-year grace period, and 1.5% for the balance. The Government of Sri Lanka will also provide the equivalent of $24 million.

Technical assistance grants of $3.8 million will be given to support the project implementation and to strengthen capacity of the Public Utilities Commission of Sri Lanka (PUCSL). PUCSL, as the independent regulatory body, will play a critical role in efficient regulation of the power sector under the recently passed Sri Lanka Electricity Act. ADB will provide $1 million from its regular TA funding program, with $800,000 from the Climate Change Fund and $2 million from the Japan Special Fund, administered by ADB. The Government of Sri Lanka will provide $950,000 in-kind.

The Ministry of Power and Energy will be the executing agency for the project which is due for completion in May 2013.