POLICY & REGULATION · 8 min read
The Electricity Tariff You Are Paying Assumes a Fuel Price That No Longer Exists
Sri Lanka’s electricity tariff has remained unchanged since 11 May 2026. For this decision, the prices of furnace oil and naphtha were assumed to be Rs 210.00 and Rs 175.00 per liter, respectively, figures that were kept steady until September. The state fuel supplier has since increased these prices to Rs 248 and Rs 210 respectively. Three mechanisms used to keep the tariff under control expire before the fourth quarter starts, and as of 13 September, the regulator has published nothing about the quarter beginning on 1 October.
By the ESGNexus Editorial Team · September 2026 · Estimated reading time: 8 minutes
KEY TAKEAWAYS
|
All companies in Sri Lanka that pay an electricity bill are currently paying a price based on an outdated figure.
The Sri Lanka Public Utilities Commission (PUCSL) announced its ruling on electricity tariffs on 9 May 2026, with the decision taking effect on 11 May. Hidden within that ruling is a series of assumptions regarding fuel prices. The price of furnace oil rises from Rs 184.80 per liter in the first forecasting period to Rs 210.00 and then remains at Rs 210.00 for each of the following periods in the forecast. Naphtha rises from Rs 154.60 to Rs 175.00, then remains at that level. It is flat. Five periods show the same figures, extending through September 2026.
They were not forecasts in the usual way. They were the prices the Ceylon Petroleum Corporation (CPC) had agreed to follow. And the CPC has now stopped adhering to them.
What the Regulator Assumed, and What the Fuel Now Costs
In a statement to the Sunday Times at the end of August, Mayura Neththikumarage, Managing Director of the CPC, said the corporation had increased the prices of furnace oil (HFO) from Rs 210 to Rs 248 per liter and naphtha from Rs 174 to Rs 210 per liter. He also explained why the previous prices were set: “We sold HFO and naphtha at a loss because the prices had been fixed to maintain the electricity tariff.”
| Fuel | PUCSL cost assumption, decision of 9 May 2026 | CPC price reported late August 2026 |
| Furnace oil (HFO) | Rs 210.00 per liter, held flat to September | Rs 248 per litre — up 18.1% |
| Naphtha | Rs 175.00 per liter, held flat to September | Rs 210 per litre — up 20.0% |
The sources are the PUCSL, ‘Decision on Electricity Tariffs’, 9 May 2026 — pucsl.gov.lk; and the print edition of the Sunday Times, 30 August 2026 — sundaytimes.lk. The percentages are based on PUCSL’s own assumptions. The Sunday Times uses a naphtha base of Rs 174 rather than the Rs 175.00 used in the decision document; based on the newspaper’s figure, the increase works out to 20.7%. We provide both figures rather than reconcile them, since we cannot determine which represents the transacted price.
It is not an error on the part of the regulator. A cost-of-supply model may use a contracted price. The issue is more specific and difficult: the contract behind that figure has expired, the figure has not been publicly revised, and the tariff continues to base its charges on it.
Three Supports Expire Before 1 October
The fuel agreement is not the only item running out; when you look at the instruments together, they all point to one fortnight.
| Date | What happens |
| 18 April 2026 | CPC agrees to supply the National System Operator with fixed-price fuel for three months, to stabilize electricity prices. |
| 9 May 2026 | PUCSL issues its tariff decision, assuming furnace oil at Rs 210.00 and naphtha at Rs 175.00 a liter, flat through September. A government subsidy of Rs 15 billion is declared for the electricity industry and taken into the calculation. |
| 11 May 2026 | The revised tariff takes effect. It is still in force. |
| 18 July 2026 | The three months from 18 April expire. |
| Week to 30 August 2026 | The CPC notifies the National System Operator that the agreement has ended, and raises furnace oil and naphtha. |
| 4 September 2026 | The National System Operator’s fourth-quarter tariff revision is due at PUCSL for approval. |
| 30 September 2026 | The Rs 15 billion subsidy is reportedly ending. |
| 1 October 2026 | The fourth quarter begins — the first quarter falls within the forecast El Niño peak. |
The sources are the PUCSL, ‘Decision on Electricity Tariffs’, 9 May 2026 — pucsl.gov.lk; the Sunday Times, 30 August 2026 — sundaytimes.lk; and Newswire, 10 May 2026 — newswire.lk. The Newswire article gives a 30 September deadline for the subsidy, which the decision document we examined does not mention.
The Regulator’s File Is Empty, and Last Quarter It Was Not
The claim most straightforward to verify concerns an absence, so it is important to be precise about how we checked it. On 13 September 2026, the PUCSL electricity category page had no item dated after 3 August 2026—only a note regarding renewable energy generation targets. The Commission’s newsroom also had no item dated after 24 August 2026—just a press release on feed-in tariffs. Its public consultation page showed no ongoing consultation. There was no proposed revision of the fourth-quarter tariff, no bulk supply tariff submission for the fourth quarter, and no public consultation notice.
This matters because the third quarter shows what the process looks like when it operates normally. For the quarter starting 1 July 2026, PUCSL issued both a ‘Bulk Supply Tariff Submission for 2026 Quarter 3’ and, on 25 June, a communication regarding the tariff revision, based on a submission made on 15 June. The document was made public six days before the quarter it related to.
The deadline for the fourth quarter was 4 September, and nine days later there is still nothing on the file, while the quarter does not start for less than three weeks. Although this does not prove that the submission had not been made—since the Commission is not required to publish immediately upon receipt and our only knowledge of the deadline comes from the Sunday Times—it does show that the single largest input cost in the nation’s power system has changed by about a fifth and that no public document shows this.
| The government had given a subsidy that had run out. — Pradeep Perera, Chairman, National System Operator |
Which Subsidy Ran Out? Both Readings, Carried
Pradeep Perera, chairman of the National System Operator, summed up the situation in the sentence quoted above. Since the issue cannot be resolved satisfactorily, we will not feign that it can.
The decision document prepared by PUCSL states: “The Government has announced a subsidy of BLKR 15 for the electricity industry, which is to be taken into account in this tariff review.” That amounts to Rs 15 billion, and the notice to the recipient. The regulator refers to it as a subsidy for the electricity industry, which is included in the tariff calculation. However, Newswire, which reported the same decision on 10 May, described it as a subsidy “intended to offset the effect on consumers” and stated that it “will remain in place until September 30”.
This is not pedantry. If a consumer rebate expires, the tariff remains in place, and the bill ends up being higher. If a transfer to the industry expires, a gap in cost recovery results, and the tariff itself must make up for it. According to the regulator’s own wording, it is the second instance. Therefore, there are two interpretations of what Mr Perera meant by saying something had run out—namely, the fixed-price fuel agreement that ended in July, or a separate transfer that has already been exhausted even though the declared amount of Rs 15 billion extends until the end of this month. We have not been able to determine which it is, so we include both possibilities.
The Deferral Rule Sends the Bill to the Worst Quarter of the Year
The decision determines the amount that can be carried over into October. The document specifies the recovery mechanism as follows: “the revenue surplus or deficit resulting from the Bulk Supply and Operation Business in the period ‘p’ is to be compensated during the tariff determination for the period ‘p+2’.”
Check the calendar; the shortfall that occurred when the fuel agreement expired on 18 July is in the third quarter. Instead of being offset in the fourth quarter of 2026, it is offset in the first quarter of 2027 under the p+2 scenario.
That is the conclusion, and it is far from reassuring. The period from January through to March 2027 is exactly the timeframe which the Director General of the Department of Meteorology, A L K Wijemannage, has referred to as the one in which “temperatures will rise further while rainfall falls, leading us into a clearly dry and warm period”. It is the period when hydropower—the low-cost form of generation that has been taking on the thermal cost all year—is least able to help. It is also the quarter that ends with the National System Operator’s obligation to have added at least 450 MW of solar photovoltaic capacity, together with battery storage, to the system by March 2027.
The deferral rule does not lower the fuel bill; instead, it shifts it to the quarter with the least capacity to absorb it and piles it up against the capital deadline.
How much space was there initially?
The figure established in May shows the full picture: the total cost is MLKR 163,190 and MLKR 160,504 for the two forecast periods, totaling MLKR 323,694, compared with estimated revenue of MLKR 136,268 and MLKR 141,231, totaling MLKR 277,498. This results in a shortfall of MLKR 46,196—approximately Rs 46.2 billion—and the declared subsidy of Rs 15 billion covers about 32 percent of this amount.
By contrast, in the third quarter of 2026, PUCSL kept tariffs unchanged, citing a projected deficit of Rs 417 million, a figure it described as 0.3 percent—a minor rounding variation in a system of that scale, as ESGNexus reported in August. A fuel cost increase of one-fifth is not a rounding variation. Before the fuel price change, the tariff had already been covering two-thirds of a Rs 46 billion deficit.
What the Forecast Says, and What It Does Not Yet Say
The first tariff period within the forecast El Niño peak is the fourth quarter of 2026, and the forecast has become more definite. A multi-agency assessment dated 28 August 2026, published by the FAO, WFP, UN Women, WMO and OCHA, shows that 25 out of 26 models expect a very strong El Niño from October to December, that 15 models predict Niño 3.4 anomalies of at least +3.0 degrees Celsius, and that the most recent weekly Niño 3.4 value had attained +2.7 degrees. On 10 September, Sri Lanka’s own Department of Meteorology raised its estimate. In its Seasonal Forecasting Division bulletin SF-2026-09-ENSO-IOD, it states that there is “a greater than 90% chance of a very strong El Niño” from September to November and then from November to January 2026-27, with the outlook attributed to the United States Climate Prediction Center.
For the power system, the situation is a double-edged one, and the direction of change is significant for the tariff; the same report states that for Sri Lanka “the wetter signal becomes particularly important from October 2026 onwards”, this being the time of the Second Inter-Monsoon; above-average rainfall in October and November would refill the reservoirs and thus replace thermal generation—which is the only type of generation that could absorb the extra fuel without there being a rise in the tariff.
It is merely a forecast, not a fact, and the driver behind it has not been identified. In its September bulletin, the Department describes the Indian Ocean Dipole as “currently neutral”. However, it notes that the weekly index stood at +0.41 degrees Celsius — “this is the third week in a row that the index has reached the positive IOD threshold (+0.4 °C), it being necessary for values to remain above this threshold for some time before an event can be regarded as established”. The report adds that the models indicate a positive Dipole will develop and continue, “even though there is still some uncertainty regarding when and how strong it will be”. The multi-agency assessment prepared on 28 August gave the index a value of +0.18 degrees for the week ending 16 August and stated that positive conditions were “not yet established”.
Source: Seasonal Forecasting Division, Department of Meteorology, Sri Lanka, “Current situation and forecasts of ENSO and IOD for SON 2026”, No SF-2026-09-ENSO-IOD, issued on 10 September 2026 — meteo.gov.lk. The bulletin attributes its figure of +0.41 degrees to 9 August 2026, a date that is both earlier than and higher than the +0.18 degrees reported by the 28 August multi-agency assessment for the week ending 16 August. Both figures are included as published; we have not been able to reconcile them and therefore do not treat them as part of a series. The rainfall maps for September, October and November in the bulletin are composites based on the period 1991 to 2020 under El Niño conditions, not forecasts for 2026.
The argument for rain that would alleviate the tariff in the fourth quarter rests on a driver that has reached its threshold for three weeks in a row, yet the national forecaster still refuses to treat it as established. This is a more promising situation than it appeared in August. A budget cannot be based on that. The National System Operator’s own assessment at the end of August said reservoir storage was adequate to enable hydropower generation until October. October is now the following month.
What This Means for Your Company This Month
1. Do not base the fourth quarter’s budget on the present tariff since the tariff currently in effect is calculated on furnace oil at Rs 210.00 per liter and the supplier has given up that price. Whatever decision the PUCSL reaches, the premise underlying your current bill is no longer valid.
2. It should be treated separately and more carefully during the first quarter of 2027. The p+2 rule indicates that the third quarter of 2027 will experience under-recovery, which corresponds to the period from January to March 2027. This is also the quarter when the Department of Meteorology anticipates dry, warm conditions, and when hydropower is least able to replace thermal generation. Assuming a single annual escalation rate will therefore underestimate the situation.
3. You should look at the regulator’s file rather than at the news cycle. The important document is the fourth-quarter bulk supply tariff submission, along with any consultation notice available on pucsl.gov.lk. For the third quarter, this appeared six days before the quarter started. If no such document appears before 1 October, then the quarter has started without a public cost basis.
4. Whenever the energy cost assumption stated in your SLFRS S2 climate disclosure is mentioned, you should verify if it is still valid. First-wave filers have included references to grid electricity prices and the proportion of hydropower in generation in their transition and physical risk narratives. Both of these figures have changed this quarter. If a disclosed assumption is now out of date, this constitutes a disclosure issue, rather than merely a budgeting issue.
5. For any reservoir figure that you rely on, you must state the name of the population concerned. Sri Lanka has at least four different reservoir series: the reservoirs used for hydro-generation and those operated by the Irrigation Department, each with different populations and figures, and only the first affects generation risk.
The Honest Limits of This Piece
Three of the points are based on a single source and must therefore be regarded as such. The updated fuel prices, the agreement reached on 18 April, and the submission deadline of 4 September all come from one report — the Sunday Times article of 30 August 2026 — which directly quotes both the Managing Director of the CPC and the Chairman of the National System Operator. However, it remains a single source. The 30 September deadline for the Rs 15 billion subsidy is taken from a single secondary report and is not included in the decision document. The lack of a fourth-quarter document on the regulator’s website reflects what was published and indexed on 13 September 2026, not what the Commission has received.
What is most important, and indeed what the argument is based on, is the decision document itself, including the fuel assumptions, the p+2 recovery rule, the Rs 15 billion which is referred to as a subsidy for the industry, and the cost and revenue figures. These figures were prepared by the PUCSL and therefore must be altered.
Sources & Further Reading
Public Utilities Commission of Sri Lanka, “Decision on Electricity Tariffs” (final decision, May 2026), 9 May 2026 — pucsl.gov.lk
Public Utilities Commission of Sri Lanka, “Bulk Supply Tariff Submission for 2026 Quarter 3” and “Communications on Electricity Tariff Revision”, 25 June 2026 — pucsl.gov.lk
Sunday Times (print edition), “Electricity rate hike likely as CPC ends subsidy, raises fuel prices”, 30 August 2026 — sundaytimes.lk
Newswire, “Revised electricity tariffs effective from Monday; government subsidy until September”, 10 May 2026 — newswire.lk
FAO, WFP, UN Women, WMO and OCHA, “Asia and the Pacific: Snapshot of El Niño, Indian Ocean Dipole and Middle East Crisis”, 28 August 2026 — srilanka.un.org
Department of Meteorology, Sri Lanka, Seasonal Forecasting Division, “Current condition and forecasts of ENSO and IOD for SON 2026”, No SF-2026-09-ENSO-IOD, 10 September 2026 — meteo.gov.lk
Xinhua and EconomyNext, Department of Agriculture and Department of Meteorology briefing, 4 September 2026 — english. news.cn; economynext.com
Daily FT, “450 MW of solar PV with Battery Energy Storage Systems by March 2027”, 25 August 2026 — ft.lk
Related ESGNexus analysis: our August coverage of the reservoir series that runs the grid, the third-quarter tariff decision held flat by a 0.3 percent gap, and the PUCSL feed-in tariff decision of 21 August are all available on esgnexus.lk under Policy & Regulation.
| About ESGNexus ESGNexus is Sri Lanka’s independent platform for ESG, CSR, and sustainability intelligence. We track company-level ESG performance, regulatory developments, and sustainability data across Sri Lanka’s listed companies, large unlisted corporates, and state-owned enterprises. All editorial content is independently produced. Sponsored content is clearly labeled. |
Data disclaimer: Information in this article is sourced from publicly available documents. ESGNexus does not independently verify company disclosures. Errors and omissions excepted.