ADB approves $100mn loan for power sector reforms in Sri Lanka

Manila: The Asian Development Bank (ADB) approved a $100 million policy-based loan to support and facilitate reforms in Sri Lanka, aimed particularly at enhancing the financial sustainability of the power sector in the island country.

As per a release from the regional development bank dated July 11, the Power Sector Reforms and Financial Sustainability Program will complement the International Monetary Fund's Extended Fund Facility arrangement and bolster the operational efficiency and competitiveness of the island country's power sector.

The program will help create a conducive environment for private investments, boosting renewable energy development, and modernizing power grids.

"Developing cost-competitive renewable energy and providing reliable and affordable electricity supply--with a transparent and independent power sector regulatory framework--will help Sri Lanka drive economic growth and address the current financial and economic crisis," said ADB Principal Energy Specialist Jaimes Kolantharaj.

"The program will also support the development of renewable energy to accelerate the country's transition to clean energy as envisaged under Sri Lanka's nationally determined contributions."

It will support regulatory reforms with the implementation of the new national tariff policy that will improve financial sustainability of the sector through cost-reflective tariffs.

To help accelerate investments in renewable energy, the program will assist multiple initiatives under the renewable energy expansion plans for 2023-2030. The key initiatives include implementing a periodic revision of feed-in tariffs for small power plants and rooftop solar users, facilitating the integration of renewable energy projects into the national grid, and effective application of a competitive procurement framework for renewable energy projects.

ADB said it will provide an additional USD 1 million technical assistance grant from its Technical Assistance Special Fund to support the power sector reforms in the island nation.

The island nation's economy is stabilizing from a crippling financial crisis of 2022, which was triggered by depleting foreign exchange reserves. Sri Lanka faced a severe economic crisis as a result of past policy missteps.

Its economy has shown signs of recovery in recent months since then.

The island nation defaulted on its overseas debt in May 2022 after depleted foreign exchange reserves triggered the worst financial crisis since its Independence.