In a landmark decision, the Supreme Court of Sri Lanka recently ordered the Ceylon Electricity Board (CEB) to pay compensation of LKR 1 Million to the Vavuniya Solar Power (Private) Limited. This was following the hearing of a Fundamental Rights petition filed by the latter regarding the failure of CEB over several years to issue a “letter of intent”. The said letter confirms the intent of the state-owned electric utility to procure power from the renewable energy plant to be set up by the petitioner, and without which, the petitioner would not be able to obtain the necessary approvals, permits, and licences from the relevant regulatory authorities.

The Court ordered CEB to issue the “letter of intent” to the petitioner, and also found fault with the Sri Lanka Sustainable Energy Authority (SEA), the state renewable energy regulator, for failing in their duty. The decision is widely seen as a win for the renewable energy industry in Sri Lanka, as it is no secret that the sector has been facing strong resistance from the utility provider and other state authorities in gaining access to the troubled energy sector.

In its judgment, the Supreme Court held that the position taken up by the CEB and its refusal to issue the “letter of intent” to procure power from the solar power generation plant in Vavuniya was contrary to the law. The Lordships further found that both CEB and SLSEA had had unlawfully failed in the performance of their duty towards the public in encouraging the project proponents to harvest green energy sources.

The judgement is in line with the current strategy of the Government to steer 70% of the country’s energy requirements towards renewables. In 2019, the Government’s focus was firmly set on advancing the renewable energy programme. Consequently, President Ranil Wickremesinghe has issued directives to achieve the ambitious goal of producing 70% of the power requirement of the country from renewable energy resources. This also comes in the wake of multiple power crises, which the Sri Lankan public have faced over the past decade. Given that renewable energy sources like solar, wind, and wave power cost a fraction of that is spent on energy generated by burning fossil fuel, Sri Lanka should ideally focus its attention to attract international investment to promote such renewable energy projects. 

Renewable energy stands as the future predominant energy source within the nation, offering the potential to retain funds otherwise spent on fossil fuels. This shift not only reduces electricity expenses but also frees up resources for broader development initiatives. At a time when Sri Lanka was facing a foreign exchange crisis to source US dollars to purchase the necessary coal, crude oil, and petroleum products such as petrol and diesel, had there been more renewable energy projects in operation to cater to the national supply grid, the impact of the forex crisis would have felt less.

The Supreme Court directed the Secretary to the Ministry of Power and Energy to conduct an investigation into this matter and take action according to law against those identified for having infringed the fundamental rights of the petitioner. It observed that the legitimate expectations of the petitioner have been frustrated by CEB, and its decision was held to be arbitrary and untenable in the eyes of the law. The Court held further that the CEB and the SLSEA had jointly infringed upon the fundamental rights of the petitioner to equal protection of the law and, inter alia, the right to engage in the lawful business which it has chosen, planned and applied for, also guaranteed under the Constitution of Sri Lanka.

The Court further observed that the critical importance of generating electrical energy using sustainable and renewable energy resources available in abundance in Sri Lanka, and the devastating consequences that have arisen out of the failure on the part of agencies of the State to voluminously and efficiently mobilize new renewable energy generation projects for the generation of electricity using solar and wind power, and other renewable energy resources is felt unlike ever before. This is an unfortunate testament to the root causes of the prevailing situation.

With this judgement, the Courts have given a clear sign to the local and international investor community that change is possible, and that those who are responsible will be held accountable in the process of contract enforcement and doing business in Sri Lanka and displaying its commitment to changing the attitude towards bureaucracy within the existing system.

This publication is solely for the purposes of general information of our clients and other interested persons. The aim is to provide a general overview of the topic and this should not be construed as legal advice.

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