By: Staff Writer

January 06, Colombo (LNW): Sri Lanka’s marginal recovery in Foreign Direct Investment (FDI) inflows masks deeper institutional and policy failures that continue to undermine the country’s ability to compete for global capital. While inflows edged just above the US$1 billion mark in 2025estimated at around US$1.1 billion compared to US$614 million the previous year analysts argue this improvement owes more to post-crisis normalization than to any coherent investment strategy.

At the center of the problem lies the Board of Investment (BOI), the state agency mandated to attract and facilitate foreign investments. Designed decades ago as a “one-stop shop,” the BOI today is widely seen by investors as constrained by outdated administrative structures, slow decision-making, and a near-total lack of policy flexibility. These shortcomings were underscored by the recent announcement that BOI Chairman Arjuna Herath will step down at the end of this month, just 16 months after taking office under the new government.

Although no official reason has been cited, Herath’s exit comes amid mounting frustration within government ranks over the inability to offer competitive incentives to investors. Any tax concession beyond existing frameworks requires approval from the International Monetary Fund (IMF), whose current programme treats such incentives as potential “revenue leakage.” Multiple proposals put forward by Sri Lankan authorities have reportedly been rejected by the IMF, often without consideration of their broader economic impact.

A Deputy Minister involved in IMF discussions said the Fund’s approach focuses narrowly on meeting revenue targets, rather than evaluating how selective concessions could expand the tax base, boost employment, and generate long-term growth. “There is no holistic assessment of economy-wide benefits,” the official noted, adding that alternative paths to revenue enhancement through private-sector expansion—are largely ignored.

This rigidity was reflected in Budget 2026, which offered few incentives to stimulate investment. Instead, the government lowered the VAT registration threshold from Rs.60 million to Rs.36 million annually, effectively widening the tax net at a time when businesses were hoping for relief. Despite stable headline macroeconomic indicators, dissatisfaction is growing within business circles, many of whom feel policymaking has become excessively IMF-driven.

Sri Lanka’s tax regime, coupled with high operating costs and policy uncertainty, offers little motivation for multinational firms to relocate or expand operations locally. Plans to introduce a politically sensitive property tax by 2027 even as state revenues improve have further dampened investor sentiment.

With indications that Sri Lanka will remain aligned with the IMF even after the four-year programme ends next year, concerns are rising about the absence of a clear, independent economic vision. Observers warn that without meaningful reform of institutions like the BOI, modest FDI gains risk stalling, eroding confidence in the government’s ability to deliver sustainable growth.

By: Staff Writer

January 06, Colombo (LNW): Sri Lanka’s coal procurement process has come under renewed scrutiny following concerns over the quality of the first coal shipment supplied by a new vendor, raising serious questions about electricity generation efficiency, financial exposure, and procurement oversight.

The Lanka Coal Company (LCC) is currently withholding payment for a 60,000-metric-tonne coal shipment imported from South Africa by an Indian supplier, pending receipt of the Discharge Port Certificate. This follows allegations that the coal delivered is of lower quality than contractually expected. According to informed sources, initial documentation from the Load Port Certificate indicates a reduced calorific value, a key performance indicator for coal used in thermal power generation.

Officials within the Ceylon Electricity Board (CEB) have expressed concern that the lower calorific content could undermine operational efficiency at the Norochcholai Coal Power Plant, which supplies nearly 40% of Sri Lanka’s electricity. One senior source claimed that approximately 117 metric tonnes of the newly supplied coal would generate only about 285 megawatts of power, compared to 300 megawatts previously produced using 107–109 metric tonnes of Russian coal. The implication is clear: more coal would be required to generate the same electricity output, driving up operational costs.

While the price difference between the South African coal and earlier Russian supplies is margina estimated at around $1.50 less per tonne—energy experts note that price alone does not determine value. Lower calorific value can translate into higher consumption, increased ash disposal, greater wear on plant equipment, and ultimately higher generation costs passed on to consumers.

The shipment is the first of 25 consignments contracted under a long-term tender finalised toward the end of 2025, following months of procurement delays. Sources warn that if similar quality issues persist across future deliveries, the consequences could extend beyond short-term inefficiencies, potentially affecting national electricity pricing and energy security.

Compounding concerns are allegations surrounding the tender process itself. The procurement has been criticised by political groups, particularly the Frontline Socialist Party (FSP), which alleges irregularities in tender conditions that allegedly favoured the winning bidder, Trident Chemphar Ltd. Claims include significant reductions in coal reserve requirements and references to past controversies involving the company.

LCC General Manager Namal Hewage has acknowledged the existence of allegations but stressed that no payment will be made until the Discharge Port Certificate is reviewed. He maintained that contractual safeguards exist to impose penalties if quality failures are confirmed, while denying that the Load Port Certificate currently indicates a breach.

As Sri Lanka continues to rely heavily on coal-fired power generation, the unfolding situation highlights the high stakes involved in fuel procurement decisions where quality lapses or governance failures can quickly translate into national-level consequences.

By: Staff Writer

January 06, Colombo (LNW): Sri Lanka’s bold plan to create a network of national and potentially international AI data centres has generated excitement in policymaking circles, but the budget allocation of just Rs. 3 billion for 2026 has triggered intense debate among economists, technologists, and industry analysts who argue that the funding bears little resemblance to the scale of investment required to build and operate competitive AI infrastructure.

In the recently unveiled 2026 national budget, Rs. 3 billion was earmarked for AI development, national data platforms, and government-managed data centres as part of the country’s strategy to become a digital hub in South Asia. This includes Rs. 500 million specifically set aside to attract global and local investors to build data centres through subsidised land, lower initial electricity tariffs, and green energy incentives, alongside Rs. 750 million for AI research, cloud innovation, and workforce development programmes.

However, critics argue that these figures are insufficient even for preliminary engineering studies, let alone actual construction of data centres. Industry benchmarks suggest that a single mid-scale data centre without significant AI capabilities—can easily cost between Rs. 20 billion and Rs. 40 billion, a figure that dwarfs the entire AI allocation for Sri Lanka in 2026.

The absence of a publicly released feasibility study has become a central point of contention. Analysts warn that without a detailed assessment of site suitability, power availability, cooling requirements, network connectivity, and disaster risk, and long-term operational costs, government projections risk becoming aspirational slogans rather than realistic strategies.

One top official involved in planning acknowledged that natural disasters, such as Cyclone Ditwah and subsequent landslides, have made site evaluation far more critical than previously understood. Choosing unstable land for data centres could expose the entire project to prolonged outages, higher insurance costs, and long-term reputational damage.

Supporters of the project point to Sri Lanka’s non-aligned geopolitical stance and strategic location as potential competitive advantages. Officials have floated the concept of hosting “data embassies”secure AI and data services for foreign governments positioning Colombo as a regional digital hub. Yet such high-level aspirations require substantial backing, robust infrastructure, and investor confidence grounded in feasibility analysis rather than budgetary tokenism.

Another concern is energy capacity. AI-centric data centres require immense continuous power, sophisticated cooling, and redundancy systems. Even in neighbouring markets with far stronger technology ecosystems, building an AI-ready facility can run into hundreds of millions of dollars, excluding the ongoing electricity and maintenance costs.
Critics argue that the government’s approach risks repeating past patterns—announcing high-profile technology initiatives before establishing the technical, fiscal, and risk frameworks to support them. For Sri Lanka to genuinely compete in the global AI economy, analysts say, a realistic budget aligned with feasibility planning and staged investment—not token allocations—must be prioritised

By: Staff Writer

January 06, Colombo (LNW): The unraveling of the Krrish Square development raises critical questions about project governance, investor accountability, and institutional preparedness in Sri Lanka’s urban development framework.

Conceived as a landmark mixed-use complex, Krrish Square was envisioned to reshape Colombo’s skyline through luxury apartments, commercial zones, retail outlets, and a seven-star hotel. Central to the plan was the restoration of the historic Transworks Building into a boutique heritage hotel, blending modern development with architectural preservation. Yet today, the project remains incomplete, mired in legal and financial uncertainty.

At the heart of the crisis lies Krrish Transworks Colombo Ltd., the local arm of India-based Krrish Group. After securing a 99-year lease from the Urban Development Authority in 2012 for Rs. 5 billion, the developer struggled to sustain funding momentum. According to UDA sources, financial constraints ultimately halted construction, triggering creditor action and court-ordered liquidation.

While the appointment of a liquidator has brought procedural clarity, it has also exposed systemic weaknesses. Large-scale projects of this nature depend heavily on sustained capital inflows, yet safeguards to ensure long-term financial capacity appear to have been limited. The absence of early warning mechanisms allowed problems to escalate before corrective action could be taken.

Another complicating factor is the involvement of apartment buyers who invested in the project before its collapse. Their financial claims now form part of the company’s liabilities, making it difficult for authorities to terminate the lease or reassign the land without lengthy legal resolution. This highlights the need for stronger consumer protection frameworks in off-plan property developments.

From a governance standpoint, the case illustrates the challenges faced by regulatory bodies once a project enters liquidation. Although the UDA retains oversight responsibilities, decision-making power now rests with the liquidator, constraining the authority’s ability to intervene swiftly in the public interest.

Constructively, the Krrish Square experience offers valuable lessons. Future mega developments could benefit from phased land leasing, stricter performance benchmarks, and clearer exit clauses if investors fail to meet funding or construction milestones. Enhanced financial vetting and mandatory escrow arrangements for buyer funds could also reduce systemic risk.

There is still a path forward. Once liabilities are clearly mapped, the project may attract new investors with the capacity to revive or reimagine the site. However, recovery will depend on transparent processes and a recalibrated approach to managing foreign-led urban developments.

Ultimately, Krrish Square is not just a story of a failed project, but a reminder that ambition must be matched by accountability. Strengthening institutional safeguards now could prevent similar outcomes and restore confidence in Sri Lanka’s urban transformation agenda

By: Staff Writer

January 06, Colombo (LNW): Sri Lanka’s proposed electricity tariff increase of around 11 percent for the first quarter of 2026 marks a significant moment in the country’s ongoing energy sector transformation, as the government attempts to balance financial stability, institutional reform, and long-term renewable ambitions.

The tariff revision, submitted by the Ceylon Electricity Board (CEB) to the Public Utilities Commission of Sri Lanka (PUCSL), is intended to cover electricity consumption from January to March 2026. If approved, the increase would apply across all customer categories, including domestic, industrial, commercial, and religious users. According to the CEB, the adjustment is necessary to offset an estimated Rs. 13.1 billion financial shortfall during the quarter.

A major contributor to this deficit is the cost of restructuring the state-owned utility. As part of the CEB’s ongoing carve-out process, the government has proposed a voluntary retirement scheme for 2,158 employees, funded through tariff revenue. The scheme, valued at Rs. 11.55 billion, offers payments ranging from Rs. 900,000 to as much as Rs. 5 million per employee. The cost has been converted into a five-year loan, with instalments beginning in early 2026.

Beyond workforce restructuring, the tariff proposal reflects broader financial pressures faced by the utility, including deferred payments to suppliers, rising interest costs, and damage caused by Cyclone Ditwah, which reportedly resulted in losses of nearly Rs. 20 billion to the electricity network.

Importantly, the timing of the tariff increase coincides with a pivotal phase in Sri Lanka’s renewable energy agenda. The year 2026 marks the final implementation stage of the Renewable Energy Resource Development Plan 2021–2026, which prioritises large-scale wind and solar projects and the development of renewable energy parks. To maintain momentum, the government has also unveiled a Green Energy Acceleration Plan for 2025–2030, aimed at fast-tracking clean energy investments and reducing reliance on imported fossil fuels.

Sri Lanka’s strategy extends beyond renewable electricity generation. The country is positioning itself as a regional hub for green hydrogen and green ammonia, supported by a National Renewable Hydrogen Policy launched in late 2025. The 2026 Budget further underscores this shift, announcing projects to produce green hydrogen using surplus renewable power during off-peak hours. Green ammonia, in particular, has been identified as a promising export fuel for the global shipping industry, leveraging Sri Lanka’s location along major maritime routes.

While the tariff hike remains subject to regulatory review and public consultation, it reflects the government’s attempt to reconcile short-term financial realities with long-term energy independence and sustainable economic growth.