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Government Reforms in Budget 2022 to Revolutionise Sri Lankan RE Sector

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The Sri Lankan Budget 2022 presented some reforms for the industrial sector. Mr. Indrajit Fernando, the former President of SAFA (South Asian Federation of Accountants) and CA Sri Lanka quoted that “the additional tax on companies making a profit of more than Rs. 2 billion is a welcome step towards revival of the Sri Lankan economy. In this way, the companies with a high net worth and stable standing can contribute to the overall distress in the economy post COVID 19 in Sri Lanka.”

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N.R. Gajendran, the Senior Partner of Gajma and Co.- One of the leading tax consultants of Sri Lanka stated that “the Budget has some revolutionary features to revive the economy. In order to improve the ease of doing business, FDI flows and business confidence in the economy, major policy changes have been made. Over reliance on borrowing from the Central Bank could lead to inflation.”

The renewable energy sector can be utilized favorably to increase foreign investments in Sri Lanka, while also improving the uptake of clean energy in the country, he added.

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This can be achieved through private PPAs (Power Purchase Agreements) between companies and private investors. The investor would pay for the installation of solar panels on the rooftop of the factories of the company, and receive a return in the form of payment for electrical energy used from the system. Such PPAs would greatly incentivize foreign investments, as they would assure steady and stable returns on their investments. Solar energy is one of the most abundant sources of clean energy available in Sri Lanka.

Gajendran also suggested that adequate infrastructure must be developed and land clearances expedited at the earliest for large scale solar parks to get constructed in Sri Lanka. The present process for owning a solar park is cumbersome as many approvals, clearances and competitive bids are required. Land acquisition costs, cost of obtaining approvals and clearances and payment to the CEB sub stations are essential before any solar park becomes operational in Sri Lanka. This is a time consuming process, and in a way also hinders the foreign investments in the country.

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Ease of doing business would improve in the renewables sector if the Government clearances would be made faster, simpler and more efficient. Foreign investments in the renewable energy sector would also improve drastically, given the PPAs and clearances processes got streamlined.

The Budget also recommended a shift towards renewable energy with an ambitious goal of production of almost 70% of the total electricity in Sri Lanka from clean sources. This is a major incentive for manufacturers of equipment required for installation of solar parks. Navin de Silva, the MD of a solar equipment manufacturing company (SolSpectrum) stated that “the prices of solar panels have risen considerably due to the increase in prices of the raw materials globally. Shipping costs have also escalated leading to a further rise in production costs of solar panels. Foreign investments would be required to revive the renewable energy sector in Sri Lanka.”

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