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Power Generation- Renewable resources (dendro power) Sri Lanka

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Power Generation- Renewable resources (dendro power) Sri Lanka

  1. 1. PGXPM Batch IX – Business Economics Assignment Business Proposal: FDI in Power Generation Using Renewable Resources (Dendro Power) Country of Destination: Sri Lanka Prepared by Suseendran.S.S Pushkar.W Rajesh.J Dhanaraj P 1
  2. 2. PGXPM Batch IX – Business Economics Assignment Preface 1) About our Company 2) Why Sri Lanka. a) Economic Scenario – 2013 Index of Economic Freedom b) ADB Governance and Public Service Delivery Update - SRI LANKA c) U.S. DEPARTMENT of STATE – 2013 Investment Climate Statement – Sri Lanka 3) Sri Lanka Investment Incentives & Opportunities 4) Why Energy sector. 5) Why Renewable Energy. a) Sri Lankan Scenario 6) Why Bio Mass. 7) Why Dendro Power. 8) Economic reason analyzed for selecting Sri Lankan Energy Sector 9) Foreign direct investment Sri Lankan Scenario 2
  3. 3. PGXPM Batch IX – Business Economics Assignment About the Company Green Power Generation One of the few companies in India those are active in developing a broad range of renewable energy projects. A unique perspective on the renewable energy sector from the point of view of an owner, as well as contractor. Egged on with strong financial backing & appetite towards green energy, GPC is more than just an EPC executor. Providing Turnkey Contracting Solutions for Biomass Power Plant Solar Thermal Power Plant Wind Farms Energy is now a basic need of the people; it has today become a criterion of progress as it facilitates the life of man today. Energy occupies an important place as an infrastructure facility that provides an impetus to the socio-economic and cultural progress of mankind. Mission Statement: “To Provide Clean Green Energy to all by means of renewable energy and making the world a better place to leave” Vision Statement: “To become the largest Energy Generation Company in South Asia by 2020” 3
  4. 4. PGXPM Batch IX – Business Economics Assignment WHY SRI LANKA Economic Scenario – 2013 Index of Economic Freedom World Rank: 81 Regional Rank: 13 Quick Facts Population GDP (PPP) : : Unemployment Inflation (CPI) FDI Inflow : : : 20.5 million $116.5 billion 8.2% growth 6.5% 5-year compound annual growth $5,674 per capita 4.2% 6.7% $300.0 million http://www.heritage.org/index/country/srilanka#rule-of-law 4
  5. 5. PGXPM Batch IX – Business Economics Assignment Country Details Sri Lanka’s economic freedom score is 60.7, making its economy the 81st freest in the 2013 Index. Its score is 2.4 points higher than last year, reflecting improvements in half of the 10 economic freedoms including fiscal freedom, investment freedom, and the control of government spending. Sri Lanka is ranked 13th out of 41 countries in the Asia–Pacific region, and its score is above the world and regional averages. Recording significant score gains for the third consecutive year, and with the third largest score improvement in the 2013 Index, Sri Lanka has regained the rank of “moderately free” that it last held in 2005. Notable reforms have eased foreign exchange controls and reduced both individual and corporate marginal income tax rates to below 30 percent. Substantial challenges remain in the struggle to promote stable long-term economic development, and lingering institutional weaknesses call for much greater commitment to reform, particularly in two areas. Sri Lanka continues to score below the world average in freedom from corruption and the protection of property rights, and marginal reforms in these critical areas have failed to generate much improvement. Back Ground President Mahinda Rajapakse’s April 2010 re-election is attributed to his success in defeating the terrorist Liberation Tigers of Tamil Eelam and eliminating its top leadership. In November 2011, the government released the findings and recommendations of the Lessons Learnt and Reconciliation Commission (LLRC), but the United Nations Human Rights Council still passed a resolution in March 2012 calling on Sri Lanka to address alleged violations of international humanitarian law and explain how it would implement the LLRC recommendations. The level of state intervention in the economy is high. Sri Lanka depends heavily on foreign assistance, and China has become a significant lender for infrastructure projects. 5
  6. 6. PGXPM Batch IX – Business Economics Assignment Rule of the Law The judicial system is weak and vulnerable to political interference. Extensive delays in the commercial court system often prompt out-of-court settlements. A fairly reliable registration system exists for private property, but fraud and forged documents are problems. Property disputes plague the recently freed northern and eastern regions of the country. Mistrust of government is considerable due to widespread public-sector corruption. Limited Government The top income tax rate is 24 percent, and the top corporate tax rate is 28 percent. Other taxes include a value-added tax (VAT). The overall tax burden equals 12.9 percent of total domestic income. Government spending is equivalent to 21.2 percent of GDP. The budget deficit continues to be over 5 percent of GDP, but public debt has declined to below 80 percent of GDP. Regulatory Efficiency The business start-up process has been streamlined, and the number of licensing requirements has been reduced. With no minimum capital required, launching a business takes five procedures. The cost of completing licensing requirements is now significantly lower, but obtaining necessary licenses still takes more than 200 days. Inefficiency in the labor market causes an imbalance between labor supply and demand. Inflation has been high. Open Markets The trade-weighted average tariff rate is 6.9 percent, and non-tariff barriers further constrain trade freedom. Inadequate infrastructure and burdensome bureaucracy hinder much-needed dynamic growth in private investment, but controls on foreign exchange transactions have been relaxed in recent years. Non-performing loans in the banking system remain a problem, and the state continues to influence the allocation of credit. 6
  7. 7. PGXPM Batch IX – Business Economics Assignment ASIAN DEVELOPMENT Bank Governance and Public Service Delivery Update - SRI LANKA Growth in Sri Lanka started to recover in 2013 from a dip in 2012. Power generation, which can constrain economic activity, picked up in May to grow by 9.2% but dropped slightly in June. Imports recorded positive growth in April and June. The deceleration in credit to the private sector shows signs of abating. GDP growth rebounded to 6.8% in the second quarter of 2013 from 6.0% in the previous quarter, driven by service sector recovery. Industry maintained high growth, while agriculture suffered under bad weather from late 2012. Inflation eased to 6.3% year on year in August from close to 10% in early 2013. Nonfood inflation dropped below 4% in March–April 2013 but accelerated again to 6% in May as power tariffs rose. The central bank eased policy rates in December 2012 and again by 50 basis points in May, subsequently reducing in June the statutory reserve requirement by 2%. Bank lending rates decreased from 14.4% in February 2013 to 12.1% in June, easing the deceleration of credit to the private sector. Both exports and imports showed signs of recovery in the first half as the pace of decrease eased. The trade deficit shrank by 7.1% from the second half of 2012. Workers’ remittances and earnings from tourism partly offset the trade deficit, with remittances growing by 9% in the first half. Financial inflows have been strong, with foreign direct investment amounting to $540.0 million. The rupee has been under pressure since June from greater import demand. Foreign holdings of government securities dipped in late August, which further weakened the rupee by 5% against the US dollar from the end of May to the end of August. Sri Lanka’s gross official reserves equaled 4.1 months of imports in June 2013, down from 4.5 months in March. Looking forward, eased monetary policy, continued recovery in services, and improvements in agriculture assuming normal weather will support stronger performance in the second half. External trade is expected to remain weak. This Update retains the April projection for GDP growth in 2013 at 6.8% and in 2014 at 7.2%. As inflation is likely to be contained for the rest of the year as food prices remain stable, the inflation projection for 2013 is revised down to 7.0%. The 6.5% forecast for inflation in 2014 is maintained, as are current account deficit forecasts for both years. 7
  8. 8. PGXPM Batch IX – Business Economics Assignment U.S. DEPARTMENT of STATE 2013 Investment Climate Statement – Sri Lanka Positive Trends for Investment With the 2009 end to Sri Lanka's long-running civil war, the country has an historic opportunity to take advantage of its peacetime stability, geography, educated workforce, and scenic beauty. The Government of Sri Lanka (GSL) has set ambitious goals for economic development – aspiring to GDP growth rates over 8% and developing economic hubs in ports, aviation, commerce, knowledge, and energy. With a relatively open investment climate and financial system, moderately stable monetary policy, improving infrastructure, and world-class local companies, Sri Lanka has many of the ingredients to progress economically. For some U.S. and foreign investors, Sri Lanka’s frontier market has been fertile ground for both direct and capital investments. Sri Lanka’s free trade agreements with India and Pakistan offer preferential access to those markets, and Sri Lanka maintains friendly relations with all its neighbors in the region. The capital city of Colombo offers expatriate managers a good quality of life, with excellent international schools, good housing, and decent urban conditions relative to the region. Political stability and the cessation of the war have allowed the government and population to focus on rebuilding their economy and society. Energy Sri Lanka has an over 90% electrification rate and the electricity supply is generally reliable. However, given the country’s dependence on hydropower, power failures during peak demand periods can occur in years of low rainfall. Breakdowns at the new Chinese-built coal power plant also add unpredictability. Renewable energy use is rising, and the government expects to meet its target of 10% renewables by 2015. So far, solar and wind power hold the most promise. 8
  9. 9. PGXPM Batch IX – Business Economics Assignment Trade Agreements The Indo-Lanka Free Trade Agreement (ILFTA) (www.doc.gov.lk) between Sri Lanka and India has been in effect since 2000. Under this agreement, most products manufactured in Sri Lanka with at least 35% domestic value addition (if raw materials are imported from India, domestic value addition required is only 25%) qualify for duty-free entry to the Indian market. Tariff concessions for Sri Lankan products include zero tariffs on 4,235 items; 50 to 100% reduction for tea and garments under quota; 25% reduction for 553 textile items; and no reduction for 431 items on India's "negative list." Discussions are underway to reduce the negative lists of both countries. The American Chamber of Commerce in Sri Lanka, in a 2006 study on the ILFTA, identified agro-processing, food preparation, tea, rubber products, coconut products, spices, furniture, ceramic, and confectionary as having growth potential in India. The study also found vehicles and vehicle parts, aircraft parts, and motorcycles to be possible attractive sectors for U.S. manufacturers under the Indo-Lanka Agreement. Current exporters to India claim to face a variety of non-tariff barriers that have reduced the FTA’s effectiveness. The two countries are also discussing liberalization of the services sector under a proposed Comprehensive Economic Partnership Agreement (CEPA), with a possible incorporation of investment and economic cooperation. Because production constitutes a portion of value addition, the ILFTA and the proposed CEPA enables foreign firms operating in Sri Lanka to gain preferential entry into the Indian market. The CEPA negotiations have stalled, however, and it is not clear when or if a deal will be finalized. Sri Lanka and six other South Asian nations belonging to the South Asian Association for Regional Cooperation (SAARC) agreed in 2004 to establish a South Asian Free Trade Area (SAFTA) (http://www.saarc-sec.org/main.php), which began operation on July 1, 2006. SAFTA offers regionalized tariff reductions for imports from member countries, and a stated objective is to aim to reduce duties for imports from member countries to between zero and 5% over a period of 7-10 years. The SAARC trade talks have had limited effect to date on trade and investments. Together, the above agreements help make Sri Lanka a gateway to South Asia for foreign investors. 9
  10. 10. PGXPM Batch IX – Business Economics Assignment Areas of Concern But Sri Lanka can still be a challenging place to do business, with high transactions costs related to an unpredictable economic policy environment. While many government departments and ministries boast competent, highly motivated staff, the government’s overall provision of services is impeded by inefficiency, and economic growth is stymied by opaque government procurement practices. While some U.S. companies have done and continue to do well here, others have departed frustrated. While growth has been moderate, inflation is high and exports are declining. Many observers believe Sri Lanka will have trouble paying back loans taken to improve infrastructure, although government officials are confident that growth will bring in the necessary revenue. In a March 2013 report, Moody’s Investor Services noted that Sri Lanka’s short-term debt maturing within a year remained elevated, even above the total foreign reserves. Moody’s considers this a significant risk to Sri Lanka if there was a sudden halt in external credit expansion. From an investor viewpoint, the power sector is particularly challenging, as decision-making authority is highly fragmented, and the capital investments required are substantial. Trade union opposition at both the Ceylon Petroleum Corporation and the Ceylon Electricity Board (CEB) make reform of these loss-generating SOEs very difficult. A projected 30% increase in electricity cost will be passed on to consumers in early 2013. Foreign Direct Investment Trends From 2006-2010, foreign direct investment (FDI) flows to Sri Lanka averaged only about US$500 million per year. The Central Bank claims annual FDI flows increased to about US$1 billion in 2011 and 2012, mainly for ports and tourism projects, but fell short of the US$2 billion government target. According to the BOI, the top sources of foreign direct investment in Sri Lanka (total flows from 2005-2012) are Malaysia, India, Hong Kong, United Kingdom, UAE, Mauritius, Netherlands, Singapore, China, Luxembourg, USA, Sweden, Japan, Italy, and Belgium. However, a 2012 UNCTAD report estimates FDI in Sri Lanka at only US$300 million. (Seehttp://unctad.org/sections/dite_dir/docs/wir12_fs_lk_en.pdf) 10
  11. 11. PGXPM Batch IX – Business Economics Assignment Sri Lanka Investment Incentives Incentives Proposed for Board of Enterprises of Investment (BOI) in Budget Proposals 2013 – Further to the tax incentives granted for BOI enterprises with the budget proposal 2012 and the Inland Revenue(Amendment) Act No 8 of 2012, the budget proposals 2013 has introduced the following concessions for the selected enterprises in different sectors.  Exemption of Corporate Income Tax  Reduced Corporate Income Tax Rates  Taxation of BOI registered enterprises after the expiry of tax holiday  Permissible Deductions  VAT, NBT & PAL exemption on Imports  Amendment to Telecommunication Levy Act No 21 of 2011  Amendments to Strategic Development Projects Act No 14 of 2008. 1) Exemption of Corporate Income Tax a) Cultivation of renewable energy crops – Profit and income from any enterprise for cultivating of renewable energy crops in agriculture lands, will be exempted (Sec 16 E will be introduced to the IR Act) for a period of 10 years. b) Organic fertilizer and pesticides – The profit and income of an enterprise of private Sector investments for manufacturing, distribution or sale of organic fertilizer and pesticides will be exempted. 11
  12. 12. PGXPM Batch IX – Business Economics Assignment Investment Opportunities – Renewable Energy sector  Services Large Scale – Renewable Energy Investment Incentives Category Amount of Investment (Fixed Assets) Rs (Mn) Tax Incentives Period of Exemption (years) Applicable Rate (after tax holiday) Import Duty ( Custom duty exemption On) Capital Goods Raw Materials Exemption from Exchange Control - Determine by the board Large Scale ( New Under Takings) >300 & < 500 6 > 500 & < 700 7 Power Generation using >700 & < 1,000 8 renewable resources 12% yes* >1,000 & < 1,500 9 >1,500 & < 2,500 10 >2500 12 Customs duty, VT, PAL Exemptions On imports of Capital Goods ( for Large scale undertakings) For the importation of project related plant, machinery or equipment, the applicable Customs Duty, VAT and PAL will be deferred / exempted during t project implementation period and said deferment will be treated as an exemption on the fulfillment of the conditions specified by the Board of Investment of Sri Lanka * During Project Establishment Period 12
  13. 13. PGXPM Batch IX – Business Economics Assignment  Investment Opportunities – Agriculture sector (Renewable Energy Crops) Investment Incentives Category Amount of Investment (Fixed Assets) Rs (Mn) Tax Incentives Period of Exemption (years) Applicable Rate (after tax holiday) 10 Import Duty ( Custom duty exemption On) Capital Raw Goods Materials Exemption from Exchange Control 12% Under Takings with no investment threshold Renewable Energy Crops None  Taxes and Levies Type of Duty Applicable for Company Corporate Tax (Income tax) Nation Building Tax (NBT) Tax base Profits Turnover Economic Service Charge (ESC) Turnover Withholding tax on Dividends (WHT) Dividends Distributed Value Added Tax (VAT) Value of Goods or services supplied Applicable Tax Rate Remarks 12% After Tax Holiday 2% ( Supply of water / electricity are Registration Criteria if turnover of a quarter is Rs 500,000 or exempted) more (An indirect tax hence inbuilt in the price) Registration Criteria: if turnover of a quarter is Rs 50 Mn. Or 0.25% more subject to a ceiling of Rs. 30 Mn per quarter 10% Exempted during the tax holiday period Supply of water - 12% Electricity Registration Criteria: if turnover of a quarter is Rs 650,000 or Exempted Annual Turnover: Rs 2.5Mn 13
  14. 14. PGXPM Batch IX – Business Economics Assignment Why Energy Sector Sri Lanka Power & Energy Sector The base demand for power in Sri Lanka was 2517 MW in 2010 and is forecasted to increase up to 5306 MW by the 2020. In view of the growing demand for power, it has been planned to increase the power generation capacity to 3470MW in 2012 and to reach 6367 MW in 2020, respectively. The Ceylon Electricity Board plans to generate 20% of the Power supply from renewable energy sources by 2020 from 6% at present. For the purpose of bridging this gap, sufficient investment opportunities will be envisaged on development of renewable energy sector through wind, dendro, solar and mini hydro power plants. Up to end July 2011, total electricity generation capacities of 225.4 Mws from 94 new projects have been connected to the National Grid. They comprise 182.951 Mws from 87 Mini Hydro Plants, 11 Mws from 2Nos BIO Mass Plants and 1.378 Mws from 2 Solar Plants & 30 Mws from 3 Nos Wind Power Plants. It is the combined effort of the Ministry of Power and Energy and the Ceylon Electricity Board to fulfill 100% of the Electricity requirement of the country by year 2014 by ensuring supply of Electricity to every House hold. Grid Interconnection Mechanisms for Off-Grid Electricity Schemes in Sri Lanka-http://www.pucsl.gov.lk/ 14
  15. 15. PGXPM Batch IX – Business Economics Assignment The Gazette of the Democratic Socialist Republic of Sri Lanka EXTRAORDINARY No. 1553/10 – TUESDAY, JUNE 10, 2008 Government Notifications MINISTRY OF POWER & ENERGY National Energy Policy & Strategies of Sri Lanka I, W. D. J. Seneviratne, Minister of Power & Energy do hereby publish the National Energy Policy & Strategies of Sri Lanka referred to in the following schedule, prepared on National Energy Sector of Sri Lanka and approved by the Government for the information of the general public. W. D. J. SENEVIRATNE, Minister of Power & Energy. 11th May, 2008. NATIONAL ENERGY POLICY & STRATEGIES OF SRI LANKA MINISTRY OF POWER AND ENERGY GOVERNMENT OF SRI LANKA CHALLENGES faced by Sri Lanka’s Energy Sector are many. While ensuring a continuous supply of electricity and petroleum products, the growing economy has to manage a strategic balance between indigenous energy resources and imported fossil fuels. Electricity supply to household needs is yet to reach a quarter of Sri Lanka’s population. Commercial energy utilities are required to be further strengthened to improve their financial viability and service quality. The involvement of the country’s population in the investment, operation, regulation and delivery of energy services needs to be increased. This document declares the National Energy Policy of Sri Lanka, and spells out the implementing strategies, specific targets and milestones through which the Government of Sri Lanka and its people would endeavour to develop and manage the energy sector in the coming years in order to facilitate achieving its millennium development goals. Specific new initiatives are included in this policy to expand the delivery of affordable energy services to a larger share of the population, to improve energy sector planning, management and regulation, and to revitalise biomass as a significant resource of commercial energy. 15
  16. 16. PGXPM Batch IX – Business Economics Assignment 1.1 Energy Supply Energy supply in Sri Lanka is mainly based on three primary resources, namely, biomass, petroleum and hydroelectricity. In 2004, hydro-electricity production in the country accounted for 706.9 kTOE (thousand tonnes of oil equivalent) while the biomass-based energy supply was 4,494.4 kTOE. Approximately 4,304.2 kTOE was provided by imported crude oil and finished petroleum products such as diesel and liquefied petroleum gas (LPG). Additionally, the non-conventional resources (mainly wind) provided 3.5 kTOE of primary energy, giving an aggregate primary energy supply of approximately 9,509.1 kTOE. The 2004 primary energy contributions to national energy supply were 47.3% from biomass, 45.3% from crude oil and petroleum products and 7.4% from hydroelectricity. The use of non-conventional energy resources in Sri Lanka is of a relatively smaller scale and therefore its contribution is presently of low significance in the macro energy picture. 1.2 Energy Demand Growth With the increasing demand for energy to provide for the country’s economic and social development, total primary energy demand is expected to increase to about 15,000 kTOE by the year 2020 at an average annual growth rate of about 3%. Electricity and petroleum sub-sectors are likely to record higher annual growth rates of about 7-8%. Hydro electricity production and biomass-based energy supplies, which are the only large-scale indigenous primary energy resources available in Sri Lanka, are expected to increase only marginally in the near future. This is mainly due to limitations in further hydropower development owing to lower economic viability of exploiting the remaining large hydropower sites and limited use of biomass with gradually increasing standard of living of the population. This means that the country’s incremental primary energy requirements need to be supplied mainly by imported fossil fuels in the medium term. In the longer term, possible development of indigenous petroleum resources and accelerated development of non-conventional renewable energy are likely to make a significant change in Sri Lanka’s mix of primary energy resources. 1.3 Energy Sector Governance Electricity and petroleum are the two main commercial energy supply sub-sectors in Sri Lanka. Both these subsectors, which are largely served by state-owned utilities, are presently undergoing process of reforms. Biomass and wind are also emerging as significant forms of commercial energy. The electricity supply industry is dominated by state sector institutions, namely the Ceylon Electricity Board (CEB) and Lanka Electricity Company (Pvt.) Ltd. (LECO). CEB is expected 16
  17. 17. PGXPM Batch IX – Business Economics Assignment to be unbundled vertically and horizontally to form one generation company, a single transmission and bulk-power trading company and several distribution companies. A regulatory structure in the form of the Public Utilities Commission of Sri Lanka (PUCSL) is already in place, for all physical infrastructure sectors, inclusive of the electricity and petroleum industries. Biomass still remains a sub-sector not formally organised unlike the electricity and petroleum sub-sectors. With new developments where contribution of biomass as a primary resource of energy for electricity generation could become substantial, the biomass sub-sector would also become more organised. The “National Energy Policy and Strategies of Sri Lanka” is elaborated in three sections in this policy document .* “Energy Policy Elements” consists of the fundamental principles that guide the development and future direction of Sri Lanka’s Energy Sector. * “Implementing Strategies” states the implementation framework to achieve each policy element. * “Specific Targets, Milestones and Institutional Responsibilities” state the national targets, and the planning and institutional responsibilities to implement the strategies. This National Energy Policy and Strategies of Sri Lanka shall be reviewed and revised after a period of three years. 2 ENERGY POLICY ELEMENTS 2.1 Providing Basic Energy Needs * Energy requirements to fulfil the basic needs of the people and to enhance their living standards and opportunities for gainful economic activity will be adequately and continually satisfied at the lowest possible cost to the economy. Creating the necessary framework to provide the basic energy needs of the population is recognised as a primary social responsibility of the state. Further, the importance of maintaining the adequacy and the continuity of energy supplies at the lowest cost to the economy to satisfy the increasing energy requirement of the population, arising from the country’s economic development, is also recognised by the state. 17
  18. 18. PGXPM Batch IX – Business Economics Assignment 2.2 Ensuring Energy Security * Energy resources used in the country will be diversified and the future energy mix will be rationalized. The primary and secondary energy resources used in the country will be diversified to maximise the country’s energy security. To ensure the continuity of supply, the future energy mix will be rationalized, considering important factors such as the economic cost, environmental impacts (including those on existing hydropower project catchment areas), reliability of supplies, convenience to consumers and strategic independence. 3 IMPLEMENTING STRATEGIES The broad strategies to implement the energy sector policies are as follows: 3.1 Providing Basic Energy Needs  Priority will be given to improving access by rural areas to commercial energy forms such as electricity and petroleum-based fuels.  Current modalities of providing basic electricity requirements of the entire population either through gridextension or off-grid systems will be expanded and a systematic action-plan will be implemented to meet those requirements.  Dedicated energy plantations will be encouraged.  A transparent mechanism will be established to provide subsidies to the deserving groups to ensure that such groups have access to their basic energy needs at affordable prices. This includes providing low cost standardised electricity connections to consumers on lifeline tariffs both in urban and rural areas. It also includes improving the availability of petroleum-based fuels in rural areas at standard retail prices, while providing kerosene subsidies to deserving low-income groups in both urban and rural areas. 18
  19. 19. PGXPM Batch IX – Business Economics Assignment 4. SPECIFIC TARGETS, MILESTONES AND INSTITUTIONAL RESPONSIBILITIES This section deals with specific targets and milestones to be achieved when implementing the energy sector strategies identified. Further, the institutions responsible for implementation of these strategies are also identified in this section against each activity. 4.1 Electrification of Households Electricity will be made available to all feasible areas by extending the national grid and focussed rural energy initiatives using off-grid technologies. Capital subsidies available for grid-connected households will be extended to households seeking off-grid electricity, through the Provincial Authorities. 19
  20. 20. PGXPM Batch IX – Business Economics Assignment Why Renewable Energy Non-conventional Renewable Energy (NRE) Based Electricity in the Grid  NRE Resources include small-scale hydropower, biomass including dendro power, biogas and waste, solar power and wind power. These are the leading sustainable, non-conventional forms of renewable energy promoted in Sri Lanka for electricity generation into the grid. In addition, other NRE resources such as wave energy and ocean thermal energy are also encouraged where appropriate.  Commercial development of biomass will be encouraged and facilitated as a new rural industry, allowing rural poor to engage in fuel wood farming and participate in the mainstream economic activity by supplying electricity to urban load centers.  The Government will endeavour to reach a minimum level of 10% of electrical energy supplied to the grid to be from NRE by a process of facilitation including access to green funding such as CDM. The target year to reach this level of NRE penetration is 2015.  A review of technical limits and financial constraints of absorbing NRE will be carried out and will be followed by a technical and financial barrier removal exercise, with external support and expertise where necessary.  The NRE strategy shall not cause any additional burden on the end use customer tariffs. If justified, the Government may subsidize the energy utilities for this purpose.  The Government recognises that certain NRE technologies would require incentives to ensure their capacity build-up to contribute to the national NRE target. These incentives shall be provided on a competitive basis, in which the NRE developers shall bid for a share of the NRE target subject to a price ceiling. NRE incentives shall be technology-specific and based on actual energy supplied to the grid. 20
  21. 21. PGXPM Batch IX – Business Economics Assignment  To make available the incentives for NRE technologies, the Government will create an ‘Energy Fund’, which will be managed by the ECF. This fund will be strengthened through an energy cess, grants received from donors and well wishers, as well as any funds received under CDM. This fund will be used to provide incentives for the promotion of NRE technologies and strengthen the transmission network to absorb the NRE technologies into the grid.  NRE developments will not be charged any resource cost (royalty) for a period of 15 years from the commercial operation date. Resource costs charges from selected NRE technologies after the 15th year of commercial operation shall be used to finance incentives for further NRE development, through the Energy Fund. Institutional responsibility to implement this NRE strategy and to achieve targets shall lie with the PUCSL and ECF. The ECF shall prepare a Long-term Non-conventional Renewable Energy Plan (LTNREP), which shall provide interim targets for specific NRE technologies, upper thresholds of pricing, and resource costing. The LTNREP shall be a 20 year plan, updated at least once in two years. Implementation of the LTNREP shall be promoted and facilitated by ECF. 21
  22. 22. PGXPM Batch IX – Business Economics Assignment Opportunities for Renewable Energy Development - Non Conventional Renewable Energy (NCRE) Sector Development History The Sri Lanka governmental policy directions for power sector envisages that the hydro power generation potential of the country will be developed to its full potential as it is the major indigenous resource for power generation as at present. Under this policy, all large-scale hydropower generation facilities are to be remaining under government control for the foreseeable future. Private sector financing will be utilized for power generation from small hydro power plants CEB Assistance Provided for the Development of Renewable Energy Ceylon Electricity Board has promoted generation of electricity using Renewable Energy Resources since early nineties by giving the required assistance to the private sector, which includes training & capacity building, pre feasibility studies and resource assessments The procedure for electricity purchases from small power producers (SPPs) by the CEB was regularized beginning 1997 with the publication of a standardized power purchase agreement (SPPA) which included a scheme for calculating the purchase price based on the avoided cost principle. This was offered to all sources of power plants of capacity less than 10 MW The government has identified the development of Renewable Energy Projects, as a matter of policy to diversify the electricity sector from high cost thermal power generation. Therefore, required incentives and assistance was provided for the renewable energy resource development (Mini Hydro, Bio Mass, Wind, etc.,). Further National Energy Policy 2006 has identified fuel diversify and energy security in electricity generation as a strategic objective and development of renewable energy projects was identified as a part of this strategy. In view of above action has been taken to introduce a cost based, technology specific, three-tier tariff instead of avoided cost based tariff with effect from year 2007 22
  23. 23. PGXPM Batch IX – Business Economics Assignment Keys to Success Long-term concessionary financing through RERED Project As part of the commitment of the Government to accelerate the development of renewable energy generation as well as to integrate the use of nonconventional renewable energy within the power sector, GOSL approved the joint World Bank and the Global Environment Facility (GEF) assisted Renewable Energy for Rural Economic Development (RERED) project. Through the RERED project, GOSL aims to foster the rural economic development and improve the quality of life in rural areas by providing access to electricity, and expand the financial support for the mini hydropower projects with low cost funding. The executing agency of the RERED project is the Ministry of Finance and Planning. Project implementation, coordination and management are the responsibility of the Administrative Unit set up within the DFCC Bank. Positive features of the Standardized Power Purchase Agreement (SPPA) The SPPA was developed with the assistance of the World Bank and drafted with the standardized terms and conditions. All energy produced by the facility will be purchased by the CEB and no penalty for the non-delivery of energy from the facility. Following sources of energy are considered as Non conventional Renewable Energy sources        Hydro Energy (Mini Hydro) Wind Energy Biomass (Dendro Energy) Agriculture & Industrial waste Energy Municipal Waste Energy Wave Energy Solar Energy 23
  24. 24. PGXPM Batch IX – Business Economics Assignment What is Renewable Energy? Renewable energy is energy which comes from natural resources such as sunlight, wind, rain, biomass tides, and geothermal heat, which are renewable (naturally replenished). About 16% of global final energy consumption comes from renewable, with 10% coming from traditional biomass, which is mainly used for heating, and 3.4% from hydroelectricity. New renewable (small hydro, modern biomass, wind, solar, geothermal, and biofuels) accounted for another 2.8% and are growing very rapidly.[1] The share of renewable in electricity generation is around 19%, with 16% of global electricity coming from hydroelectricity and 3% from new renewable. Biomass Biomass (plant material) is a renewable energy source because the energy it contains comes from the sun. Through the process of photosynthesis, plants capture the sun's energy. When the plants are burnt, they release the sun's energy they contain. In this way, biomass functions as a sort of natural battery for storing solar energy. 24
  25. 25. PGXPM Batch IX – Business Economics Assignment Why Biomass? Biomass is organic non-fossil material, collectively. In other words, 'biomass' describes the mass of all biological organisms, dead or alive, excluding biological mass that has been transformed by geological processes into substances such as coal or petroleum. Carbon Sinks There is a vital difference between energy production from fossil fuels and from biomass. Burning fossil fuels releases CO2 that has been locked up for millions of years. By contrast burning biomass simply returns to the atmosphere the CO 2 that was absorbed as the plants grew and there is no net release of CO 2, if the cycle of growth and harvest is sustained. Thus the biomass option is proven to be CO2neutral. Energy plantations will act as carbon sinks. As such the energy producers using biomass could benefit from Carbon Credits under the Clean Development Mechanism (CDM) formulated under the Kyoto Protocol. Carbon Credits are being traded for US $ 5-10 per ton. Soil Enrichment The establishment of Short rotation coppice (SRC) plantations with Nitrogen fixing trees such as Gliricidia and Leucena in degraded lands previously used by shifting cultivators will over time upgrade the land to its original status. Soil Erosion Gliricidia has been proven to be ideal for Sloping Agricultural Land Technology (SALT). Through a method of planting along the grid lines in twin hedgerows soil erosion can be arrested. This method has been very effectively sustained in the hill country in tobacco growing lands. 25
  26. 26. PGXPM Batch IX – Business Economics Assignment Pricing Energy content-wise 4 tons of fuel-wood is equivalent to 2 ton of Coal or 1 ton of oil. At prices for oil at around Rs 42,000/= per ton, the energy equivalent price of fuel-wood would be around Rs 10,000/= per ton. The current delivered price of sustainably grown fuel-wood (Gliricidia) is Rs 2,500/= per ton. Presently, energy for energy, sustainably grown fuel-wood ( SGF) is three times cheaper than oil. With the creation of the market fuel-wood is likely to be even cheaper to the future. As the price of fossil fuel continue to increase and the supply becoming volatile, domestically grown fuel-wood will become increasingly attractive. Employment & Growth in Rural Economy Fuel-wood farming can become an attractive employment opportunity to the rural youth. A fully grown energy plantation of 20 ha (50 acres) can provide employment to around 40 persons on a sustainable basis bringing an income of around Rs 200 a day for manual labor. A 1 MW power plant would inject a sum of Rs 25 million to the rural economy. This sum will be shared between the farmers and the collecting agents. This opportunity will also prevent migration by the rural youth to urban areas. Foreign Exchange Large sums of foreign exchange will be saved from not importing fossil fuel and can be diverted to other important areas or reserves. Land Use and Green cover Large extents of unproductive lands would now be better utilized as energy plantations. Not only will there be plantations but simultaneously the green cover in the country will be enhanced. If 50,000 Hectares of energy plantations are grown it can increase the forest cover from the current 19% to 25%. 26
  27. 27. PGXPM Batch IX – Business Economics Assignment Electricity to Inaccessible Areas There are many areas in the country where grid electricity may not reach due to transmission difficulties. Biomass electricity is an ideal solution to such areas. Economic, Social and Environmental Impact The economic, social, and environmental impact from the above will be a tremendous boost to the country as a whole. Sri Lankan Scenario Sri Lanka is blessed with the renewable energy sources which can be utilized to fulfill energy requirements of the country. Ceylon Electricity Board as a power utility of the country has promoted generation of electricity using Renewable Energy Resources since early nineties by giving the required assistance to the private sector, which includes training & capacity building, pre feasibility studies and resource assessmentsThe economic, social, and environmental impact from the above will be a tremendous boost to the country as a whole. Moreover the government has identified the development of Renewable Energy Projects, as a matter of policy to diversify the electricity sector from high cost thermal power generation. Therefore, required incentives and assistance was provided for the renewable energy resource development (Mini Hydro, Bio Mass, Wind, etc.,). Further National Energy Policy 2006 has identified fuel diversify and energy security in electricity generation as a strategic objective and development of renewable energy projects was identified as a part of this strategy. In view of above action has been taken to introduce a cost based, technology specific, three-tier tariff instead of avoided cost based tariff with effect from year 2007 . For more details on renewable energy development in Sri Lanka please click on opportunity for renewable energy development Present Status of Non-Conventional Renewable Energy Sector (as at 31/08/2013) Latest Status of Non-Conventional Renewable Energy Sector 27
  28. 28. PGXPM Batch IX – Business Economics Assignment Present Status of Non-Conventional Renewable Energy Sector (as at 31/08/2013) No Description 1 Commissioned Projects 2 Standardized Power Purchase Agreements (SPPA) Signed Projects Project Type Mini Hydro Power Biomass-Agricultural & Industrial Waste Power Biomass- Dendro Power Solar Power Wind Power Total - Commissioned Mini Hydro Power ind Power Biomass-Agricultural & Industrial Waste Power Biomass-Dendro Power Biomass-Municipal Solid Waste Total – SPPA Signed No. of Projects 119 2 2 4 10 137 64 3 2 10 1 80 Capacity (MW) 255.37 11 5.5 1.378 78.45 351.698 149.802 21.1 4 56.77 10 241.672 28
  29. 29. PGXPM Batch IX – Business Economics Assignment Year Cap. (MW) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 8.6 11.1 23.6 31.2 39 73 88 112 119 161 181 212 227 320 351 29
  30. 30. PGXPM Batch IX – Business Economics Assignment Annual Energy Contribution from NCRE Projects Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Energy (Gwh) 43.3 64.8 103 120 206 280 346 344 433 546 724 722 730 30
  31. 31. PGXPM Batch IX – Business Economics Assignment Introduction – DENDRO Power Dendro power is the generation of electricity from sustainably grown biomass (fuel wood). It is particularly well suited to tropical countries such as Sri Lanka as the fuel wood can be grown rapidly and coppiced once or twice a month. Dendro using sustainably grown fuel wood can be effectively used to replace the use of fossil fuels for electricity generation and it can also deliver many other socioeconomic and environmental benefits Dendro Power Dendro power has great potential as a long term power generation option, both for grid-connected generation and for off-grid communities. Solar and village hydro power only have the potential to meet the energy needs of around 15-20% of the off-grid population in the country and Village Dendro Schemes can be constructed to serve off-grid communities that do not have the hydro potential and are unable to afford solar. Dendro power is a community-based electricity generating technology that includes all households in a village irrespective of their income level In Sri Lanka, nitrogen-fixing Gliricidia trees can be used as fuel wood as they are fast growing and therefore available in large volumes. Fuel wood plantations for dendro can be established as a multicrop in home gardens, as an under growth in coconut plantations, as shade for tea plantations and as a multi crop for reforestation. This means that the biomass plantations do not need to replace vital food crops. All off-grid villages in Sri Lanka have enough barren land to establish fuel wood plantations in order to the generate electricity throughout the year from Village Dendro Schemes without interfering with food crop production. While the industry is in its infancy in Sri Lanka, there are structures and systems in place that provide an enabling environment for biomass energy production. Additional advantages to pursuing the village-based approach for biomass is that community or village based power plants have a well-established history in Sri Lanka. What has been firmly established in connection with village-based systems in the country and elsewhere is the importance of strong leadership within the community, the participation of and sustained dialogue with participants, and a well-managed Electricity Consumers’ Society (ECS). 31
  32. 32. PGXPM Batch IX – Business Economics Assignment Socioeconomic Benefits of Dendro Power  Every Megawatt of dendro power installed creates employment for 300 people in rural communities  Unused land and agricultural small holds are ideal locations for the establishment of biomass plantations and people can enhance their earnings by selling fuel wood to dendro plants  Employment opportunities are also generated out of the need to establish and manage fuel wood plantations and for plant construction and maintenance work Environmental Benefits of Dendro Power  Biomass is a renewable energy source which is almost carbon neutral as the carbon emissions released during combustion are recaptured during regrowth. However in practice not all biomass generation will be carbon neutral as transportation to the generation plant will generate carbon emissions. Nevertheless, with the rising importance of reducing carbon emissions and addressing climate change, biomass is becoming recognised as a feasible fuel substitute for conventional energy sources.  The leaves of the Gliricidia Sepium tree can also be used as cattle feed or as a substitute for urea as a soil nutrient 32
  33. 33. PGXPM Batch IX – Business Economics Assignment Economic reason analyzed Macro Economics Economic Growth Sri Lanka has the potential for strong economic growth. Despite the 1983-2009 civil war, GDP growth averaged around 5% from 2000-2008. GDP growth slowed to 3.5% in 2009, and foreign reserves fell sharply as global demand for Sri Lankan exports dropped due to the financial crisis. Economic activity rebounded at the end of the war and the negotiation of a US$2.6 billion International Monetary Fund (IMF) Stand-By Agreement, resulting in two straight years of 8% growth in 2010 and 2011. Growth slowed again to about 6.5% in 2012 due to a decline in agriculture, exports, and trade, as well as the end of the “peace dividend,” i.e., the economic re-integration of the former northern and eastern conflict zones, which had boosted agriculture and fisheries. Now that those areas are more fully exploited, their impact on the growth rate has diminished. Significant regional disparities remain between the Western Province, which contributes about 44% of GDP, and the northern and eastern provinces, which contribute 3.7% and 5.7% respectively. But growth in the North and East is promising. The Central Bank predicts the economy will grow by 7.5% in 2013 and to over 8% annually during 2014-2016. The January 2013 Central Bank Economic Roadmap claims the GDP will almost double in four years, from US$59 billion in 2012 to US$100 billion in 2016, and the government hopes to increase Sri Lanka’s per capita income from US$2,900 in 2012 to US$4,000 by 2016. Most observers believe that this is overly optimistic, but could happen if the investment rate rises from 27% of GDP to 35% of GDP, and growth rates stay above 7-8%. While the Central Bank estimates 2013 growth at 7-7.5%, the IMF predicted 6.5% growth, with concerns regarding inflation, losses from state-owned enterprises, and slow structural and tax reforms. The majority of investment is expected from private investment, as public investment is expected to remain around 6.5%. 33
  34. 34. PGXPM Batch IX – Business Economics Assignment Inflation The Central Bank applauded the fact that, by January 2013, Sri Lanka had maintained single-digit inflation for the prior 47 months, but current inflation at 8% is a major worry for economic analysts and businesses. An Urban Price Index, created by Capital Alliance Research and based on a different basket of goods, put inflation for urban middle-class households at 20%. This is consistent with a Nielsen Lanka poll that shows the Fast Moving Consumer Goods sector experienced only 1% growth in 2012, compared to 15% in 2011, likely due to a sharp rise in prices. This impacts consumer purchasing power, and has a ripple effect throughout the economy, including for education and services. Monetary Policy The government conducted a more stable monetary policy in the latter half of 2012 after defending the rupee in the beginning of the year and then allowing it to float, causing a significant depreciation. Had the exchange rate been adjusted on a more incremental basis over a longer time period, the shock to consumers and businesses would have been lessened. While many investors now believe the Central Bank is adequately managing the macroeconomic environment, economists criticized the Central Bank’s loosening of monetary policy in late 2012, which many feared would lead to double digit inflation. As of early 2013, this fear has not been realized. Budget Deficit The budget deficit (excluding state-owned enterprises (SOEs)) reached 7% in 2011, and is forecast to fall to around 6.2% in 2012 and 5.8% in 2013. However, massive losses of SOEs are a major concern and could increase the government deficit sharply, as well as diminish the service the SOEs provide and increase their internal costs. The public debt has at times reached close to 100% of GDP, but due to declining budget deficits and strong economic growth, has decreased to about 81% of GDP in 2012. While this is a positive trend, the cost of debt servicing is rising as the government takes on more commercial rather than concessionary debt. 34
  35. 35. PGXPM Batch IX – Business Economics Assignment Trade Deficit; Current Account Deficit Sri Lanka’s large current account deficit is a concern. According to preliminary data for 2012, Sri Lanka exported US$10 billion, mainly in apparel, tea, rubber, gems and jewelry. The country imported almost double that amount (US$19 billion) in oil, textiles, food, and machinery. The country’s exports for January 2013 decreased by 18% from January 2012, following a 6.7% drop in (the full year of) 2012. Manufactured exports fell by 21% in January 2013, mostly due to sharp declines in garments and food and beverage exports. Garments alone – Sri Lanka’s leading export – dropped 9%. Garment exports to the EU have fallen due to decreased demand but also due to the loss of the Generalized System of Preferences-Plus (“GSP-Plus”) trade benefits, which are EU trade concessions provided to nations that implement international human rights conventions. Sri Lanka’s 2012 imports were about US$19 billion, including a US$5 billion oil bill. Imports for January 2013 declined by 21% year-on-year, which the Central Bank ascribes to 2012 policy measures taken to discourage non-essential imports (depreciation of the rupee, limits on bank credit, and import duty hikes on motor vehicles). The government also introduced credit controls on banks in 2012 due to pressures on the current account. The credit ceiling was removed in 2013, however, and banks are now free to lend. The 2013 oil bill should also be lower due to increased hydropower generation. The narrowing of the trade deficit (from US$1.2 billion in January 2012 to US$780 million in January 2013) is positive, but the decline in exports is troubling. Sri Lanka has a limited range of exports that depend on a few key markets, which makes the country especially vulnerable to external shocks. To realize higher export growth, Sri Lanka needs to focus on manufactured exports. Apart from garments, the country still exports primarily the same goods as during the colonial and post-colonial era, i.e., tea, rubber, coconut and spices. While the rubber industry has made progress in moving up the value chain, the other industries are still focusing on raw product. In addition, the services sector needs to grow, along with the IT/BPO industry, and medical and leisure tourism. 35
  36. 36. PGXPM Batch IX – Business Economics Assignment Remittances from migrant workers, at around US$6 billion per year, are Sri Lanka’s largest source of foreign exchange and helped to partially offset the trade deficit. Sri Lanka also receives multilateral and bilateral financial support. While China has emerged as the largest recent lender, traditional donors such as the International Monetary Fund, World Bank, Asian Development Bank (ADB), and Japan as well as neighboring India continue to provide significant funds. Australia is also the new leading bilateral donor, providing US$40 million a year in assistance. Increased foreign commercial borrowings, including US$1 billion sovereign bond issues in 2010, 2011, and 2012, have also helped external reserves, which reached US$6.4 billion (4 months of imports) in 2012. In 2012, Sri Lanka successfully completed the IMF Stand-By Agreement, but in February 2013, the Government and IMF failed to agree on a follow-on facility. Political Situation Sri Lanka is a constitutional, multiparty republic. In 1978, it shifted away from a socialist orientation and opened to foreign investment, although changes in government have often been accompanied by reversals in economic policy. The current president, Mahinda Rajapaksa, was reelected to a second six-year term in January 2010. Both the President and the Parliament, elected in April 2010, share constitutional power. In 2010, the Parliament amended the constitution to end presidential term-limits and broaden presidential powers. Statist Economic Policy The government follows a statist economic policy, with key goals including the development of Sri Lanka as a regional hub for air and sea transportation, trading, energy, and knowledge-based services. The government also aims to reduce poverty by steering investment to disadvantaged areas; developing small and medium enterprises (SMEs); promoting agriculture; and expanding the civil service. The government has halted privatization – reversing several previous privatizations – and advocates state control of what it deems "strategic" enterprises such as state-owned banks, airports, and electrical utilities. The government has increased its control of the banking sector and utilized government-controlled pension funds and companies to take majority control of leading private banks listed on the Colombo Stock Exchange. The Sri Lankan military is also expanding into activities traditionally reserved for the private sector, including air services, agriculture, and tourism. 36
  37. 37. PGXPM Batch IX – Business Economics Assignment The 2013 budget continues import substitution policies, and import duties remain high on vehicles and retail items. The government has removed taxes on certain intermediate imports, however, to make the country a trading hub. Non-Concessional Foreign Debt In its drive to improve infrastructure, Sri Lanka’s non-concessional foreign debt has gone from only 2% of total debt in 2004 to 43% in 2011. This is partly due to Sri Lanka’s graduation to a middle income country and failure to qualify for concessional loans, but also due to the increase in foreign debt overall, rising from US$10.7 billion in 2003 to US$24.4 billion in 2011. Private Sector Involvement While the state is a major player in many economic sectors, the private sector plays a key role across the economy, including in finance, exports, tea, apparel, IT, and tourism. However, both local and multinational companies complain that an increasing government role in business is harming the investment climate. Though many multinational companies and local small and medium enterprises often perform better than large local companies, some feel that government procurement and project approval decisions favor large local operators. 37
  38. 38. PGXPM Batch IX – Business Economics Assignment Micro Economics Type of Market – Need of the hour Business Time- Sunday, February 03, 2013 - Need to remove power and energy sector from state monopoly The power and energy sector should be removed from the state monopoly as it is a burden to the country’s economy, said Deputy Minister of Finance Dr. Sarath Amunugama at the launching ceremony of the web site of the Public Utilities Commission at BMICH in Colombo last week. He added that the private sector should be allowed to enter the power and energy arena because the Ceylon Electricity Board (CEB) as well as the Ceylon Petroleum Cooperation (CPC) was making heavy losses under state control. The two state entities supplying electricity and fuel to the public are weighing down the economy, the Minister said. He stressed the need of promoting renewable energy sources such as solar and wind power. International financial institutions such as the World Bank and the IMF have pressurised the government to open the power and energy sector to the private sector and the losses in the CEB and CPC are often spotlighted. Recently the Bolivian President Evo Morales nationalized two electricity companies complaining they oppressed the masses by charging exorbitant rates, he said. The website of the Public Utilities Commission was launched to address the problems of around 5.5 million electricity consumers. Minister Amunugama said the Public Utility Commission has been entrusted with the responsibility of safeguarding the electricity consumer and the producer through a price regulatory mechanism. http://www.sundaytimes.lk/130203/business-times/amunugama-stresses-need-to-remove-power-and-energy-sector-from-state-monopoly-30696.html 38
  39. 39. PGXPM Batch IX – Business Economics Assignment Demand & Supply 7000 The base demand for power in Sri Lanka was 2517 MW in 2010 and is forecasted to increase up to 5306 MW by the 2020. 6000 In view of the growing demand for power, it has been planned to increase the power generation capacity to 3470MW in 2012 and to reach 6367 MW in 2020, respectively. 5000 2010 4000 2012 3000 2020 2000 The Ceylon Electricity Board plans to generate 20% of the Power supply from renewable energy sources by 2020 from 6% at present. For the purpose of bridging this gap, sufficient investment opportunities will be envisaged on development of renewable energy sector through wind, dendro, solar and mini hydro power plants. Data source CEB – Ceylon Electricity board - http://www.ceb.lk/ Energy Forum Sri Lanka - http://efsl.lk/default.aspx INDEX Mundi http://www.indexmundi.com/sri_lanka 1000 0 Demand Installed Capacity Production Deficit 39
  40. 40. PGXPM Batch IX – Business Economics Assignment Foreign direct investment Sri Lankan Scenario Fitch Ratings in a report yesterday said Sri Lanka’s strong economic growth is attracting foreign capital but foreign direct investment inflows remain modest compared with rated peers, leading to rising external indebtedness. “This could be a source of vulnerability as the central banks of major advanced economies tighten global funding conditions,” the report noted. Sri Lanka’s Central Bank said the country has received US $ 537 million worth Foreign Direct Investments (FDIs) in the first half of 2013. Sri Lanka has set a FDI target of US $ 2 billion for 2013. In 2012, Sri Lanka received US $ 1.34 billion in FDIs, falling short from a target of US $ 1.5 billion. Meanwhile, net inflows to the stock market and commercial banks in the first half stood at US $120.2 million and US $ 664.3 million respectively. Net inflows to the government securities market amounted to US $ 664.4 million. “Such inflows display that the foreign investor confidence on Sri Lanka has remained unchanged despite the volatility caused by global markets reacting to the prospects of the tapering of quantitative easing by advanced economies,” the Central Bank said. Meanwhile the Central Bank Governor, Ajith Nivard Cabraal said during a 40
  41. 41. PGXPM Batch IX – Business Economics Assignment recent forum that even if the country missed the target, it wouldn’t matter much. “Even if we miss it, it doesn’t matter. “We have had large FDIs. I know many people talk of FDIs not being sufficient. Yes, we are never satisfied. We don’t want to be satisfied ever. The Fitch report further noted mobilising more domestic savings could help fund growth without increasing reliance on foreign capital. A smaller fiscal deficit would directly boost domestic savings, while lower and less volatile inflation could lead to higher private sector savings. 41

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