CEB Reforms: What’s Really At Stake?

This video makes the case against a proposed 2025 amendment that would reverse last year’s landmark reform of Sri Lanka’s electricity sector — specifically, the unbundling of the Ceylon Electricity Board (CEB) into separate generation, transmission, and distribution entities. Advocata argues that returning these functions to 100% state ownership would be a serious policy mistake, and lays out the case in three parts: why reform was needed in the first place, why the proposed reversal is flawed, and why mixed ownership models offer a better path forward.

The video opens by explaining why CEB reform matters now: the utility is financially broken, and its losses are bleeding into public finances. It cites the volatility in CEB’s financial performance — a 144 billion rupee profit in 2024 following tariff hikes and a stable rupee, followed by an 18 billion rupee loss in just the first quarter of 2025 after a 20% tariff cut — as evidence that the current tariff-setting methodology is deeply flawed, producing swings that undermine investor confidence and fiscal stability rather than reflecting genuine operational performance. Beyond tariff design, the video points to CEB’s direct fiscal burden: a 126 billion rupee Treasury injection in 2023 and an additional 182 billion rupees in debt settlement approved in 2025, both funded by taxpayers and adding to public debt. It attributes CEB’s high generation costs to years of poor decision-making, including reluctance to adopt cost-effective renewables and storage, and premature LNG infrastructure investment without a clear pricing or demand strategy. The core structural argument is that these inefficiencies persist specifically because CEB operates as a vertically integrated monopoly — regulators cannot meaningfully discipline a utility that also owns and operates most of the country’s electricity supply, so the case for reform is described as fiscal and structural, not ideological.

The video then argues that the proposed rollback amendment is flawed for three reasons. First, Sri Lanka’s current fiscal position makes private capital essential rather than optional. The country is still recovering from its 2022 sovereign default and operating under an IMF program with strict fiscal targets, including a primary surplus requirement and capped spending. Capital expenditure fell 15% between 2023 and 2024, interest payments now consume nearly two-thirds of government revenue, and public investment has dropped to just 2.7% of GDP — leaving essentially no fiscal room for major infrastructure investment. The video also notes that even state-owned enterprise debt raised outside the central budget still functions as a contingent liability through Treasury guarantees and bailouts, and that new rules under the banking act and public debt management act are making sovereign guarantees more expensive — illustrated by CEB reportedly having to offer a 4.8% premium to the Treasury just to borrow USD 50 million from the Asian Infrastructure Investment Bank. The video frames this as both an immediate necessity and a longer-term opportunity, noting that aging demographics mean pension funds — domestic and foreign — will increasingly seek stable, long-horizon investments that utilities are well suited to provide, but only if the sector offers structure and investor confidence rather than centralization.

Second, the video argues unbundling has proven economic benefits, citing the standard rationale that bundling generation, transmission, and distribution under one entity creates conflicts of interest, eliminates internal competition and price transparency, and weakens regulatory leverage. It outlines three general approaches to unbundling — structural separation (distinct legal entities), functional/operational separation (independent operations with ring-fencing within the same corporate group), and full corporate separation (complete divestment) — and cites Chile, Brazil, and India as examples where unbundling improved productivity, maintenance, and reduced technical losses.

Third, and described as the most important argument, the video contends that Sri Lanka’s strategic interest in electricity can be protected without full state ownership, pushing back on the assumption that public ownership automatically serves the public interest. It argues that protected monopolies tend toward inefficiency, unaccountability, and political interference, and that as electricity becomes increasingly critical for sectors like AI, data centers, and manufacturing, a competitively neutral market — where public and private operators face the same standards — better serves long-term growth.

The video then works through each segment of the sector to show how mixed ownership can work in practice. For generation, it argues this isn’t a natural monopoly, since different technologies (hydro, coal, wind, thermal) have distinct investment and management profiles that don’t benefit from being bundled into a single state company; hydropower might reasonably stay under public control due to its irrigation and drinking water functions, but other generation types could be run privately under regulation. New Zealand is cited as a model, with major generation firms operating under mixed ownership, and a specific 2004 case where a state-owned reserve power plant was installed and operated by a private company, Contact Energy. The video suggests state control could be maintained through 51% equity stakes, regulatory oversight, or strategic asset protection clauses rather than full renationalization.

For transmission, acknowledged as a genuine natural monopoly due to high fixed costs, the video argues ownership structure still doesn’t need to be 100% state — pointing to Argentina, where the national grid is run by a private concessionaire, Transener, under a long-term, closely monitored contract with government step-in rights. For distribution, also a natural monopoly, the video highlights Sri Lanka’s own LECO as a majority state-owned distributor with commercial governance that has consistently outperformed CEB’s internal divisions on commercial losses, billing efficiency, and service delivery — attributing this to autonomy and incentives as much as network characteristics. It notes that the 2024 reform act proposed replicating this model with four LECO-style regional distributors, which the 2025 amendment would eliminate in favor of a single recentralized state distributor, reducing transparency and performance incentives.

The video closes by reiterating its core argument: Sri Lanka lacks the fiscal capacity to fund the sector through public money alone, unbundling is an internationally proven route to efficiency and investment, and strategic interests can be safeguarded through regulation rather than ownership — concluding that the 2025 amendment risks reverting to a model that has already failed.