ADB Approves $100 Million Loan To Enhance Financial Sustainability And Reforms In Sri Lanka’s Power Sector

The Asian Development Bank (ADB) has approved a $100 million policy-based loan to support and facilitate reforms aimed at enhancing the financial sustainability and operational efficiency of Sri Lanka’s power sector. This initiative, known as the Power Sector Reforms and Financial Sustainability Program, is set to complement the International Monetary Fund’s (IMF) Extended Fund Facility arrangement and create a conducive environment for private investments, boost renewable energy development, and modernize 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. “This program will support reforms in the power sector introduced under the Electricity Act, including institutional and regulatory reforms to improve the operational sustainability of the electricity sector. It 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.”

The program will assist the Sri Lankan government in undertaking significant institutional reforms in the electricity sector by establishing independent companies with clearly defined functions and strengthening their corporate governance and financial sustainability. It will also support regulatory reforms through the implementation of a new national tariff policy aimed at improving the financial sustainability of the sector with cost-reflective tariffs.

To accelerate investments in renewable energy, the program will support multiple initiatives outlined in the renewable energy expansion plans for 2023–2030. Key initiatives include the 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 the effective application of a competitive procurement framework for renewable energy projects. Additionally, the program aims to increase women’s participation in the power sector by developing policies to promote the equitable involvement of female customers, female entrepreneurs, and women from disadvantaged community groups.

In addition to the $100 million loan, ADB will provide a $1 million technical assistance grant from its Technical Assistance Special Fund. This grant will support program implementation, capacity building of electricity companies, and the development of their business and power system development plans.

Established in 1966, ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific while sustaining its efforts to eradicate extreme poverty. ADB is owned by 68 members, 49 of whom are from the region.

This comprehensive program represents a significant step towards revitalizing Sri Lanka’s power sector, enhancing its financial sustainability, and promoting the development of renewable energy, thereby driving economic growth and addressing the ongoing financial and economic challenges in the country.