Lanka Law

1. Introduction

The Sri Lanka Electricity (Amendment) Act, No. 14 of 2025, certified on 18th August 2025, introduces significant reforms to the Sri Lanka Electricity Act, No. 36 of 2024. This legislation addresses structural reforms in the power sector, enhances regulatory clarity, and aligns the electricity industry with national energy policy, renewable energy commitments, and international best practices.

2. Key Amendments

2.1 National Electricity Policy & Governance

• The long title of the Act amended to emphasize formulation of the National Electricity Policy as part of the broader National Energy Policy.
• The National Electricity Advisory Council is replaced by a Minister-appointed committee, reducing institutional independence but ensuring alignment with Cabinet-approved policy.
• Committee members must have 15+ years of expertise in relevant fields (energy, economics, finance, renewable energy, planning) and are subject to strict disqualification rules (conflict of interest, insolvency, criminal conviction, etc.).

2.2 Electricity Market Reforms

• The term “Wholesale Electricity Market” replaced with “National Electricity Market”.
• Market structure broadened to include:
  • Competitive wholesale spot market (day-ahead/intra-day),
  • Long-term contract market,
  • Ancillary services market (frequency control, reactive power, black-start services),
  • Retail electricity market.
• The Minister empowered to direct the National System Operator (NSO) to design market models within 3 years.

2.3 Policy Objectives

• Emphasis on continuous and reliable electricity supply.
• Clear policy mandate to minimize the carbon footprint, promote renewable energy, and optimize use of indigenous resources, in line with Sri Lanka’s international climate commitments.
• Shift from “least cost economic dispatch” to “security constrained economic dispatch”, prioritizing system reliability and stability along with cost.

2.4 Institutional Restructuring of CEB

• The Ceylon Electricity Board (CEB) to be unbundled into multiple successor companies covering:
  • Generation (hydropower, Norochcholai coal plant, Mannar wind plant, Trincomalee power, etc.),
  • Transmission & Grid management,
  • Distribution divisions,
  • Subsidiaries (e.g., LTL Holdings, Lanka Electricity Company).
• All shares of successor companies to be initially held by the Secretary to the Treasury, with permanent state ownership of hydropower assets.
• Boards of Directors appointed by the Minister with representatives from Treasury, Ministry, and experts in generation, transmission, distribution, finance, law, and procurement.

2.5 Licensing and Market Entry

• Only state-owned limited companies can hold national system operator and transmission network licences (no private operators).
• Restrictions on cross-ownership:
  • A private company cannot simultaneously hold >5% in both generation and distribution.
  • Prevents concentration of control and promotes market fairness.

2.6 Procurement & Emergency Power

• Renewable energy procurement regulated through capacity limits set by Minister’s order.
• NSO can bypass tender procedures in cases of national emergencies or long-term forced outages (subject to Cabinet approval).
• Emergency power purchases limited to one year unless extended by Cabinet.

2.7 Employees & Labour

• Staff transfer provisions included:
  • Employees of CEB generation and distribution companies to be reassigned to successor companies under terms not less favourable than existing contracts.
  • Those unwilling to transfer eligible for voluntary retirement schemes.

2.8 Strengthened Regulation & Accountability

• Boards of successor companies must adopt mandatory governance policies: enterprise management, procurement, risk management, disclosure, HR, anti-corruption, and financial management.
• Committees and companies classified as scheduled institutions under the Anti-Corruption Act, No. 9 of 2023, ensuring higher transparency.

3. Implications

3.1 For Government & Policy

• Stronger alignment between energy and electricity policy.
• State maintains control over strategic assets (hydropower, transmission, NSO).
• Reforms improve compliance with climate and energy transition goals.

3.2 For Investors & Private Sector

• Clearer market framework with opportunities in generation and renewable energy, but strict ownership restrictions.
• Transparent competitive market mechanisms may attract foreign investment.
• Risks: Possible politicization of decision-making due to ministerial control over appointments and markets.

3.3 For Consumers

• Aim to ensure reliable supply, enhanced grid stability, and decarbonisation benefits in the long term.
• In the short term, restructuring may create tariff adjustments due to unbundling and market liberalisation.

3.4 For Employees

• Guarantees of job security or retirement options mitigate labour resistance.
• However, restructuring may cause uncertainty during transition.

4. Conclusion

The Sri Lanka Electricity (Amendment) Act, No. 14 of 2025 represents a landmark restructuring of the electricity sector. By unbundling the CEB, introducing a competitive National Electricity Market, strengthening governance, and aligning with the National Energy Policy, the Act seeks to modernize the power sector, attract investment, and fulfil Sri Lanka’s renewable energy and decarbonisation commitments.

The success of the reforms will depend on:

• Balancing state control with private investment opportunities.
• Effective implementation of market rules by the NSO,
• Proper management of employee transfers, and
• Transparent and merit-based appointment of boards,