Tariff hikes on onions and potatoes: Farmers protected, poor forgotten

By Dhananath Fernando

Originally appeared on the Morning

Over the last few weeks, while the Government and Opposition sparred over political theatre, ‘crossing the Rubicon’ as they call it, a decision with far more impact on ordinary people went largely unnoticed. The import tariffs on big onions and potatoes were increased to Rs. 50 and Rs. 80 per kilo, respectively.

The Minister claims that earlier the Special Commodity Levy (SCL) was Rs. 10 for big onions and Rs. 60 for potatoes. The justification? Protecting farmers.

Yes, farmers matter. But protecting them at this cost by placing the full burden on consumers is unacceptable. Sri Lanka is still reeling from its economic crisis. According to a LIRNEasia survey, four million people fell into poverty during the crisis, raising the total to seven million.

World Bank data suggests nearly 25% of Sri Lankans now live below the poverty line. The Department of Census and Statistics (DCS) estimates that one needs around Rs. 17,000 per month just to stay above it. In this context, how do we justify a Rs. 80 and Rs. 50 tariff on two of the poorest man’s dry rations?

When ‘protection’ means higher prices

These tariffs are not unique to onions and potatoes. Similar duties apply to many day-to-day essentials. Take onions: the DCS notes that the retail price is about Rs. 140 per kilo. With the revised SCL, the price will likely hit Rs. 170–180. That means nearly one-third of the price is simply a tax disguised as ‘farmer protection.’

Potatoes tell the same story. At Rs. 300 a kilo, the extra Rs. 20 levy pushes the price to Rs. 310–320. Roughly a quarter of the price is tax. Supermarket shelves already show potatoes at Rs. 340 and onions between Rs. 190 and Rs. 230.

So should we not protect farmers? Of course we must. But let’s remember: farmers already receive fertiliser subsidies, seed subsidies, and other support. If further protection is needed, the better way is direct cash support linked to output. That way, the cost does not cascade to millions of poor consumers who have no escape. After all, the number of onion and potato farmers is tiny compared to the number of people who eat them.

A breeding ground for corruption

Tariffs that change overnight also open space for corruption. Anyone with inside information can import just before the revision and pocket huge windfalls after the levy kicks in. With commodities like onions and potatoes, which last more than a month in storage, the temptation is obvious.

We have been here before. Remember the sugar levy hike years ago? That saga exposed how easy it is to game the system with commodities that have long shelf lives. Garlic, rice, and other essentials are also caught in this cycle of discretionary tariff tinkering.

The vicious cycle

High food tariffs ripple through the entire economy. When essentials become expensive, workers from estate labourers to factory staff inevitably demand higher wages. Over time, these wage pressures erode competitiveness and trap the country in a vicious cycle of high costs and low productivity.

Even the International Monetary Fund’s (IMF) Governance Diagnostic has flagged this issue, urging Sri Lanka to remove discretionary powers over tariffs and taxes. Reforms to the Strategic Development Projects Act are meant to address exactly this kind of arbitrary policymaking.

Who really drowns in the Rubicon?

At a time when taxpayers are already stretched thin, paying some of the highest personal taxes in the region and facing steep border taxes on everything from food to vehicles, an SCL of Rs. 80 on potatoes and Rs. 50 on onions is simply unfair. If farmers are to be supported, it should be done directly, with incentives for productivity, not by inflating the grocery bill of every struggling household.

Politicians may talk about crossing the Rubicon. But for the poorest of the poor, the Rubicon is not crossed; it is drowned in. And they drown in it under the weight of a rising cost of living.

Why SL’s electricity sector keeps failing its users

By Dhananath Fernando

Originally appeared on the Morning

The tug of war between the Ceylon Electricity Board (CEB) and the Public Utilities Commission of Sri Lanka (PUCSL) is not new to Sri Lankans – or to taxpayers. 

At one point during President Maithripala Sirisena’s tenure, a Cabinet meeting was called off until the CEB and PUCSL reached an agreement on tariff revisions. In another bizarre chapter, the CEB even organised a special pooja to invoke rain gods, hoping to avoid power cuts and tariff hikes.

Now, the conversation has returned, with the International Monetary Fund (IMF) insisting that electricity tariffs must be cost-reflective as a condition for the release of the next tranche of funding. While there is a lot of noise about tariff hikes and methodologies, the critical push for structural reform remains absent. Once again, electricity users find themselves on the receiving end, with little clarity on a long-term path to reduce costs.

Concerns have deepened with proposed amendments to the Electricity Act that threaten to roll back past reforms. The outcome? Consumers and industries may have to bear higher electricity costs, whether as tariffs, taxes, or inflation.

Understanding the basics: What drives tariff structures?

There are three core principles when it comes to setting electricity tariffs:

Electricity is a homogeneous product: One kilowatt (kW) of electricity provides the same energy, regardless of whether it comes from coal, wind, or solar. While the cost of generation varies, the energy output is identical.

The cost of electricity varies by time of use: Although electricity is a homogeneous product, its cost fluctuates based on demand. Peak-hour electricity typically costs more, as it relies on expensive and quick-response generation sources.

Electricity is hard to store: Unlike other commodities, storing electricity is extremely costly. This means supply and demand must be balanced in real time, making pricing and grid stability critical.

Cost-reflective pricing is currently the principle we follow, largely in line with IMF recommendations. But cost-reflectivity alone is not enough. If the system’s inefficiencies remain unaddressed, then reflective prices will only continue to rise. 

Previously, we ignored this reality by allowing the CEB to operate at a loss. These losses didn’t vanish; they resurfaced as taxes, inflation (when financed by money printing), or higher interest rates (when financed through debt).

Why are costs high?

One of the main reasons for persistently high electricity costs is our outdated grid infrastructure. Our failure to connect to India’s electricity grid also leaves us with missed opportunities. A grid connection with India could help us stabilise our own grid and export surplus electricity – particularly solar power – thereby reducing domestic costs through offsetting.

Worse yet, the new amendments to the Electricity Act propose rebundling generation, transmission, and distribution, undoing previous reforms that sought to separate them. Unbundling improves accountability and productivity; rebundling risks taking us backward.

What should be done: Now and long-term

Long-overdue transmission upgrades require significant capital. For that, we need a structure that welcomes private investment while ensuring strong regulatory oversight. Currently, the regulator is weak, and the CEB, as a State monopoly, easily passes cost increases onto consumers without consequence.

Electricity reform is complicated and takes time. But while we figure out long-term changes, here are a few short-term, actionable steps that could help manage the situation:

1. Unify user categories: Sri Lanka currently maintains multiple user categories – domestic, religious, Government, etc. – violating the principle of homogeneity. A single unit of electricity cannot and should not be priced differently at the same time for different consumers. Instead of offering cross-subsidised tariffs, direct cash transfers should be used to support vulnerable consumers. This will promote demand-side efficiency and encourage responsible energy use.

2. Abolish Rate 1 and adopt Time-of-Use (TOU) pricing: The Rate 1 category for bulk users must be eliminated. Instead, TOU pricing should be applied universally. Uniform pricing flattens important price signals and discourages efficient energy use. TOU pricing, on the other hand, encourages load shifting, optimises grid use, and better reflects real costs.

3. Improve cost transparency: When reporting its cost structure, the CEB must clearly separate:

• Generation costs: Disaggregated by plant, including fuel, labour, maintenance, and capital, along with justifications for deviations from least-cost dispatch principles

• Network costs: Covering transmission and distribution infrastructure

• Overheads: Including administration, billing, metering, and customer services

Similarly, losses must be broken down into:

• Technical losses: From grid, transformers, and substations

• Commercial losses: From theft, faulty meters, or billing errors

• Collection losses: From non-payment or delays

Transparency will shine a light on inefficiencies, allowing policymakers and the public to demand reform based on evidence.

Cost-reflective pricing is necessary, but not sufficient. What matters more is reducing the cost itself. And that cannot be done by regulation alone. It requires competition, productivity, and bold structural reforms. 

Until we summon the political courage to tackle these long-standing issues, the electricity sector will remain trapped in a cycle of inefficiency, passing the burden from the State to the citizen, again and again.

(Source: Advocata submission to PUCSL on electricity tariffs)

Tuk-tuk economy: Where algorithms meet asphalt

By Dhananath Fernando

Originally appeared on the Morning

In mainstream media, clashes between app-based ride-hailing taxis and traditional taxis are frequently reported, especially in tourist hotspots such as Kandy, Sigiriya, and even at the Bandaranaike International Airport. 

However, many Sri Lankans, including tuk-tuk drivers, do not fully understand the economic logic behind this. Often, the debate centres on high commissions taken by app companies or the notion that international ride-hailing platforms repatriate profits overseas.

At the ‘Ignite Growth Conference’ organised by the Advocata Institute, PickMe Founder Jiffry Zulfer shed light on the economic transformation driven by platforms like PickMe and its main competitor, Uber.

The core concept of ride-hailing apps is the ability to match demand and supply within a limited geographic radius in real-time. According to Zulfer, PickMe facilitates around 20 rides every second, striving to ensure that passengers always have a ride available and that drivers remain engaged and productive.

This matching of demand and supply has created significant market efficiency. On average, a driver using the app completes around 17 hires per day, compared to just 7-10 hires for a driver waiting at a tuk-tuk stand or roaming the streets. As a result, app-based drivers utilise their vehicles approximately 81% of the time, compared to just 39% for traditional drivers.

From an economic perspective, this availability of information – knowing who needs a ride and who can provide one – drives greater efficiency, not just for passengers and drivers, but for society at large as well. According to Zulfer, PickMe has covered over one billion passenger kilometres and now transports more people daily than Sri Lanka’s railway system.

Early investors in PickMe saw returns of up to 300 times their original investment, and it is likely the Government benefited as well, collecting around 30% in taxes. App-based drivers now earn on average 40% more than traditional taxi drivers, transforming the lives of 30-50% of tuk-tuk drivers in a population of 1.2 million tuk-tuk owners in Sri Lanka. 

In essence, the biggest beneficiaries of this shift have been ordinary working-class drivers, passengers, investors, and the Government.

PickMe is now listed on the Colombo Stock Exchange, opening the door for broader public investment and shared benefits.

It is crucial to recognise that when demand and supply are allowed to interact freely, it creates a win-win outcome for all stakeholders, unlike Government-run businesses, which often favour one group at the expense of others.

Zulfer also categorised tuk-tuk drivers into three groups based on their engagement: a large segment contributes less than three hours per day, a second tier less than six hours, and only a minority works full-time (over eight hours) through the platform. Interestingly, more women are now joining the platform, unlocking new income opportunities and increasing female participation in the workforce.

The PickMe Founder further explained that when adjusting for inflation, ride prices had decreased, providing passengers with real financial benefits beyond mere convenience. At the time of launch, the app’s per-kilometre rate was Rs. 33, compared to the Rs. 40 charged by traditional meter taxis. This holds true across other ride-hailing platforms as well. 

Unfortunately, many policymakers still struggle to grasp the fundamental economic principles at play – how market forces, when allowed to operate freely, can uplift the average citizen.

Ride-hailing services have since expanded into motorbike transport, courier services, and food delivery. These platforms are now among the largest ‘restaurant’ operators in the country, despite not owning a single restaurant. 

The same model has given rise to the ‘dark kitchen’ phenomenon, enabling home-cooked meals and micro-businesses to reach a wide customer base. This has changed food habits, offered consumers more choice, and encouraged families to spend more time together with the convenience of food delivery.

Zulfer’s economic logic applies beyond transportation. It holds true for other network-based platforms like Booking.com, Airbnb, and others. The average person, especially those with entrepreneurial spirit, stands to benefit the most.

In Sri Lanka, the majority of room inventory is offered by micro and small-scale lodge owners. Online platforms have empowered them to tap into the tourism ecosystem and earn foreign income, something that was previously out of reach.

Understanding the economic logic of network-based industries is crucial for Sri Lanka’s growth. These platforms enhance productivity, generate opportunities, and create wealth. While foreign direct investment and trade policy are important, we must also pay attention to the power of networking demand and supply.

Imagine a world where the same happens to our entire public transport system. Things will not be perfect, but they definitely would be in a much better form than it is at the moment.  

By simply enabling the right environment – often by not interfering – governments can allow these industries to flourish, driving economic efficiency, opportunity, and prosperity for all.

Meeting pricing equilibrium during the fuel crisis

(Source: Slide presented by PickMe Founder Jiffry Zulfer at the ‘Ignite Growth Conference’)