Sri Lanka power sector seen enticing private investors

Apr 19, 2010 (LBO) - More private investment is likely to get attracted to Sri Lanka's power sector given stable and growing demand and improve profitability especially among hydro-power producers, a ratings agency report said. However, investments will be restricted to small power plants of less than 25 megawatts capacity as a new electricity law requires bigger plants to be controlled by government, RAM Ratings (Lanka) said.

It said in a report on the island's power sector that it was important to restore the long-term financial viability of the loss-making, heavily indebted sole buyer of power, the state-owned Ceylon Electricity Board.

"While Sri Lanka may have closed its door to large-scale IPPs, it has embraced the role of IPPs in the 'less than 25 MW' capacity segment," the RAM report said.

" . . . we note that more IPPs are likely to be attracted to the power sector given its salient features such as stable demand, moderate operating risks and long life of assets."

However, the ratings agency identified several inherent risks from a credit-rating perspective.

These include customer-concentration risk as the CEB is the sole purchaser of power, as well as construction risk involving a company’s p