Economic and Social Infrastructure

3 ECONOMIC AND SOCIAL INFRASTRUCTURE easures aimed at improving the provision of economic and social infrastructure continued, with progress in energy supply, transportation and telecommunication activities as well as health and education services. A mechanism has been established Mto ensure cost-reflective domestic fuel pricing. Accordingly, against the backdrop of elevated global crude oil prices, the first major revision of domestic petroleum prices, since January 2015, took place in May 2018, and a series of regular revisions followed. The dependence on thermal power in electricity generation was somewhat limited during the first seven months of 2018, due to increased hydropower generation supported by favourable weather conditions. However, electricity tariffs that are in general below the cost recovery levels highlight the need for expediting the adoption of a cost-reflective electricity tariff as well. With regard to transport infrastructure, several projects to improve the road and expressway network continued. Port activities continued to record significant growth while the performance of the civil aviation sector improved, particularly with increased tourist arrivals. Meanwhile, the government continued to provide social infrastructure, increasingly supported by private sector participation in such service provision. Initiatives were taken to address some of the resource constraints in the education sector, with greater emphasis on technical and vocational education. The health sector continued to support the wellbeing of the people, although there was a surge in the incidence of some communicable diseases, namely influenza and leptospirosis, during the period under review. Moreover, social safety nets continued to support economically vulnerable sectors of the society. However, amidst the demographic transition and structural reforms that are taking place in the country, the need for better targeting of social security schemes should also be addressed. Going forward, encouraging increased private sector participation in developing and maintaining both economic and social infrastructure is essential, especially in the context of limited availability of public resources. CENTRAL BANK OF SRI LANKA | RECENT ECONOMIC DEVELOPMENTS: HIGHLIGHTS OF 2018 AND PROSPECTS FOR 2019 Developments in Economic 2018. Consequently, the Brent price increased Infrastructure to US dollars 81.93 per barrel by end September 2018. Import prices of the Ceylon Petroleum Petroleum Corporation (CPC) broadly followed the global crude oil prices during the period under review. y The upward trend in global crude oil prices Accordingly, the average import price of the CPC (Brent) observed since mid-2017 continued in increased by 41.5 per cent to US dollars 77.54 per the first nine months of 2018. In mid-January barrel in the first nine months of 2018 compared 2018, the Brent price exceeded US dollars 70 to the average import price of US dollars 54.81 in per barrel for the first time since December 2014 the same period of 2017. mainly owing to the decision made in November 2017 by the Organisation of Petroleum Exporting y Retail petroleum prices of the CPC were Countries (OPEC) and some non-OPEC oil adjusted several times during 2018. Rising producing countries to extend their agreement prices in global oil markets, broad based to cut production until the end of 2018. Although 3 strengthening of the US dollar together with the increase in prices was curbed to some extent mounting financial losses and debt levels of the during February 2018 with higher oil output from CPC were considerations in implementing these the US, Brent prices continued to rise thereafter price revisions. Accordingly, retail prices of the as a result of geopolitical tensions in the Middle CPC for petrol, diesel and kerosene products East and market speculation on the possibility were increased initially in May 2018 and a regular of the US re-imposing trade sanctions on Iran. revision policy is currently in place. However, Consequently, the monthly average price of Brent considering the burden of high kerosene prices on increased to US dollars 76.88 per barrel by May low income households and the fisheries sector, 2018. However, global oil prices displayed some the government reduced the price of kerosene downward movement from early June 2018 to to Rs. 70 per litre with effect from 13 June 2018 mid-August over the expectations that OPEC and the price continues to remain at that level. could wind-down the output cut. Nevertheless, In all instances of upward price revisions, the supply concerns arising from the US trade Lanka Indian Oil Company also raised their retail sanctions on Iran resulted in a reversal in the petroleum prices along with the CPC. downward trend in oil prices since mid-August Figure 3.1 y The growth in overall petroleum sales in the Average Price of Crude Oil (Brent) in the International Market domestic market was moderate during the and the Crude Oil Import Price of the CPC first eight months of 2018. Total domestic diesel 140 sales contracted by 8.6 per cent during this period, 120 with lower fuel oil-based power generation due to 100 increased hydropower generation and decline in 80 diesel sales to the transportation sector. Further, US$/bbl sale of fuel oil decreased by 2.9 per cent during 60 the first eight months of 2018 due to the lower 40 demand from the power generation sector. 20 However, driven by the higher demand from the May-14 May-15 May-16 May-17 May-18 Jan.-14 Jan.-15 Jan.-16 Jan.-17 Jan.-18 Sep.-14 Sep.-15 Sep.-16 Sep.-17 Sep.-18 transportation sector, domestic sales of petrol grew by 7.5 per cent during the first eight months Brent CPC Import Price Sources: Bloomberg of 2018. Kerosene sales increased by 30.9 Ceylon Petroleum Corporation per cent during the same period. 34 ECONOMIC AND SOCIAL INFRASTRUCTURE Table 3.1 Recent Revisions to Retail Petroleum Prices of the CPC Prices prior to Prices w.e.f. Prices w.e.f. Prices w.e.f. Prices w.e.f. Prices w.e.f. Product 11.05.18 11.05.18 11.07.18 11.08.18 11.09.18 11.10.18 Petrol 92 Octane 117.00 137.00 145.00 N/R 149.00 155.00 Petrol 95 Octane 128.00 148.00 155.00 157.00 161.00 169.00 Auto Diesel 95.00 109.00 118.00 N/R 123.00 N/R Super Diesel 110.00 119.00 129.00 130.00 133.00 141.00 Kerosene 44.00 101.00 70.00 N/R N/R N/R (w.e.f. 13.06.18) Industrial Kerosene 88.00 110.00 N/R N/R N/R N/R N/R - No revision Source: Ceylon Petroleum Corporation Electricity sectors, which grew by 5.1 per cent, 4.6 per cent and 3.7 per cent, respectively, in comparison to y Total electricity generation grew by 3.7 per cent the corresponding period of 2017. to 8,800 GWh during the first seven months of 2018 compared to 8,488 GWh generated in y The government in collaboration with the 3 the corresponding period of 2017. Heavy rains CEB and the private sector, is currently taking received during May 2018 and the prevalence various measures to increase the installed of favourable weather conditions in catchment generation capacity through both renewable areas thereafter supported higher hydropower and non-renewable sources. Construction of the generation and eased the dependence on Moragahakanda hydropower plant, which adds thermal power generation to some extent. 25 MW to the national grid, was completed during Accordingly, hydropower generation, excluding the first half of 2018. Uma Oya and Broadlands mini hydro, increased by 99.5 per cent in the first hydropower plants will be commissioned in 2019, while Thalpitigala hydropower plant is expected seven months of 2018 in comparison to same to be completed by 2020. Further, Gin Ganga, period of 2017. Meanwhile, total fuel oil-based Moragolla and Seethawaka Ganga hydropower power generation in the country declined by 22.6 plants are expected to be completed by 2022. per cent. Coal power generation also decreased Meanwhile, the ‘Soorya Bala Sangramaya’ by 13.5 per cent during the first seven months programme added 65 MW to the national grid by of 2018, in comparison to the corresponding end June 2018 and is expected to add a further period of 2017, due to several plant failures at 70 MW to the grid by 2019. Moreover, the first the Norochcholai coal power plant. Meanwhile, 100 MW semi dispatchable wind farm of the CEB power generation through Non-Conventional is planned to be commissioned in 2020, while Renewable Energy (NCRE) sources increased another 275 MW capacity wind power plant will be by 37.2 per cent in the first seven months of 2018, developed in stages. In terms of non-renewable in comparison to the same period of 2017, due to energy, a 100 MW barge mounted thermal power increased mini hydro and solar power generation. plant in the Southern region is expected to be The Ceylon Electricity Board (CEB) accounted for commissioned in 2019. Further, three 35 MW 75.6 per cent of the total energy generation in the gas turbine power plants will be installed in the country, while the Independent Power Producers Kelanitissa power station by 2019 and 2020. (IPPs) generated the remainder. Compared to the growth of 5.6 per cent in the first seven months y The Public Utilities Commission of Sri Lanka of 2017, electricity sales grew by 4.3 per cent (PUCSL) granted conditional approval in June during the corresponding period of 2018. The 2018 for the base case Least Cost Long-Term increase in electricity sales was mainly driven Generation Expansion Plan (LCLTGEP) for by the industry, general-purpose and domestic 2018-2037, submitted by the CEB.

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