Sri Lanka coal crisis threatens IMF $700M deal. Can the government absorb Rs. 42B in losses without breaking cost-recovery conditions? Full analysis.
A scandal that started with a suspicious coal shipment has now spiraled into a full criminal investigation, a no-confidence motion against a cabinet minister, and a potential Rs. 42 billion burden on Sri Lanka’s already fragile economy. Here is the full story.
What Is Happening Right Now?
Sri Lanka is burning. Not literally — but its electricity system is under severe stress, and the politicians responsible are scrambling.
On April 12, 2026, the Criminal Investigation Department (CID) launched a formal investigation into coal imports stretching all the way back to 2009. The Presidential Secretary filed the complaint. Shortly after, Lanka Coal Company (Pvt) Ltd confirmed that police officers arrived to protect its office. Multiple media outlets reported that the building was sealed, though officials have not confirmed this detail.
This is not a minor procurement dispute. This is a scandal that touches the power supply of millions of Sri Lankans, eats into public funds at a time of economic recovery, and puts a sitting cabinet minister in the crosshairs of both a corruption commission and a parliamentary no-confidence vote.
How Did Sri Lanka End Up in This Mess?
The roots of the crisis reach back to a single, costly decision: cancelling a spot tender.
Between November and December 2025, there was a 40-day gap in coal shipments to the Lakvijaya Coal Power Plant in Norochcholai — the country’s only coal-fired power station and a critical pillar of its electricity grid. According to Ministry of Energy Secretary Prof. Udayanga Hemapala, the government had initially planned to use spot tenders to cover coal needs during this period. That plan was cancelled by the then-Minister, who preferred term tenders. But the term tender process could not deliver coal fast enough, and the gap opened.
That gap forced the Ceylon Electricity Board (CEB) to rely on emergency procurement at much higher prices. The cost of that emergency began stacking up immediately.
Then the coal that did arrive turned out to be substandard.
Indian supplier Trident Chemphar Ltd was awarded the coal contract for the 2025/2026 season. According to the National Audit Office (NAO), the Lanka Coal Company had “relaxed” its supplier registration criteria to a level the audit called unacceptable. As a result, suppliers with experience delivering coal at or near the rejected calorific value threshold were allowed to enter the bidding process. Trident Chemphar won the contract and supplied nine shipments of coal that failed to generate electricity at the expected rate.
The Lakvijaya plant runs at 270 megawatts under normal conditions. With low-grade coal, it has consistently fallen short. Each unit of electricity the plant fails to generate must come from somewhere else — typically diesel generators and fuel oil plants, which are far more expensive to run.
How Much Has This Cost Sri Lanka?
The numbers are alarming, and they keep growing.
The National Audit Office calculated a confirmed loss of Rs. 2.24 billion, based purely on the overconsumption of coal needed to generate one kilowatt-hour of electricity from the nine Trident Chemphar shipments. The audit found that the plant had to burn significantly more coal than it should have, because the coal delivered less energy per tonne than the contracted specification required.
But that figure is just the tip of the iceberg.
Internal government estimates suggest that substituting lost coal generation with diesel-based electricity costs approximately Rs. 25 billion. The National System Operator (NSO) projects an additional Rs. 42 billion burden on the system for the quarter alone.
Prof. Hemapala was careful to note that these numbers are not yet final. A government committee is verifying the full calculations, with a report expected by end of April 2026. “Only then can we determine the total loss and the extent of recoveries,” he said.
For context, this is money Sri Lanka simply cannot afford to waste. The country is still recovering from its worst economic crisis in decades, still working through an IMF bailout programme, and still navigating the ripple effects of an ongoing West Asia conflict that has pushed oil prices sharply higher.
The Question of Testing: Did the Coal Pass Inspection?
Here is where the story becomes especially troubling.
President Anura Kumara Dissanayake acknowledged in Parliament that all the Trident Chemphar coal shipments passed laboratory testing — both before shipment and at an Indian laboratory after arrival. He described this as puzzling, noting that “for some reason, the coal continues to pass both laboratory tests” even though its performance in the plant is clearly below standard.
The NAO and the Ministry of Energy have since identified a possible explanation. The testing involved PT Mitra SK Analisa Testama Samarinda, an Indonesian laboratory. According to the Ministry, certain testing components were conducted at this facility even after its accreditation had lapsed. The Ministry has directed the CEB to verify this through the relevant international accreditation body.
If the test reports used to justify the coal purchases were produced by a lab that had lost its accreditation, this would represent a serious procedural failure — and potentially a deliberate one.
The Minister at the Centre of the Storm
Energy Minister Kumara Jayakody has become the political face of this crisis, and he is fighting on multiple fronts.
In March 2026, the Commission to Investigate Allegations of Bribery or Corruption (CIABOC) indicted him before the Colombo High Court on corruption charges. The charges relate to his time as procurement manager of the Lanka Fertiliser Company in 2016, where he allegedly allowed a contracted private company to earn undue profits, causing the state a loss of over Rs. 8.8 million. He currently faces these charges on bail.
On April 7, 2026 — the same day the National Audit Office released its damning coal procurement report — opposition parties filed a No-Confidence Motion (NCM) against Minister Jayakody in Parliament.
Former minister Prof. G.L. Peiris, representing the Joint Opposition, said a minister who handles vast financial transactions must be someone of “pure integrity.” He reminded the NPP government — and specifically the JVP — of their own past position: during the no-confidence motion against former Health Minister Keheliya Rambukwella, the JVP had argued that anyone who supported a tainted minister was complicit in fraud. “They should act now according to the stance they took then,” Prof. Peiris said.
Despite all of this, President Dissanayake has chosen to stand firmly behind Minister Jayakody. In his parliamentary address announcing a Rs. 100 billion relief package, the President insisted that the procurement process itself was not flawed. He placed blame on the supplier for failing to deliver coal of the required standard.
The opposition is not convinced. MPs have accused the government of attempting to push the losses from bad coal onto ordinary electricity consumers through tariff increases — a charge the government denies.
Will Your Electricity Bill Go Up?
The Public Utilities Commission of Sri Lanka (PUCSL) has been unambiguous on this question.
In a formal statement, the PUCSL said it considers only reasonable costs when reviewing electricity tariff proposals. Extra costs caused by the coal crisis, procurement failures, or other unfair expenses will not be included in any future tariff revision. The Commission noted that even in the most recent tariff review, coal-related losses were excluded. The full commission voted unanimously to maintain this position going forward.
A senior PUCSL official, speaking anonymously, went further: “If the coal is of low quality, the loss must be borne by the responsible parties, including the supplier. We will not pass it on to the public.”
The same official dismissed claims from the Ministry of Energy that the CEB had requested a 15% quarterly tariff hike. According to the official, the CEB had only submitted revised cost data — not a formal hike proposal — and no new tariff review would begin before the third quarter.
Meanwhile, President Dissanayake announced a Rs. 5 billion-per-month electricity subsidy for households using below 90 units, to offset any changes in bills during the crisis period.
What the IMF Said — And Why It Matters
Even as the coal crisis deepened, Sri Lanka received potentially good news on the economic front. The International Monetary Fund announced that its staff and Sri Lankan authorities had reached agreement to conclude the combined Fifth and Sixth Reviews of the country’s Extended Fund Facility reform programme. Once approved by the IMF Executive Board, Sri Lanka will receive access to approximately USD 700 million in new financing.
The IMF acknowledged that reforms have continued to support economic recovery, with reserves growing and GDP growth outperforming expectations. However, it attached a key condition: the restoration of cost-recovery electricity and fuel pricing, while protecting vulnerable consumers.
This condition matters enormously in the current context. If the government absorbs coal losses rather than passing them to consumers — as it has pledged — it must find the money somewhere else. That somewhere else will need to satisfy the IMF’s cost-recovery requirements. The pressure on fiscal management over the coming months will be intense.
Where Does This Go From Here?
Several things are still moving fast.
The CID investigation into coal imports since 2009 could expose problems that go far beyond the current scandal. Lanka Coal Company is under police watch, and the scope of the inquiry suggests investigators are looking at a pattern, not just a single incident.
The committee appointed to verify total losses from the coal crisis is expected to report by end of April 2026. That report will determine how much of the Rs. 42 billion projected burden is real, and how much the government can recover through supplier penalties.
Trident Chemphar faces potential penalty clauses. The government has withheld final 20% payments on several shipments and imposed penalties on others. Whether penalties can recover a significant share of the losses remains uncertain.
The No-Confidence Motion against Minister Jayakody went to a vote in Parliament, with opposition parties expecting their NPP colleagues to fall in line behind party orders from JVP headquarters and defeat the motion. Whether the minister survives politically in the long run, however, is a different question.
For ordinary Sri Lankans, the immediate question is whether the lights stay on. Opposition MPs have alleged that unannounced power cuts already began this week, which the minister denied. The government insists it can manage the system through the crisis.
What is clear is that the decisions made in late 2025 — cancelling a spot tender, relaxing supplier criteria, and accepting coal that tests showed were within spec but performed below standard — have set off a chain of events that will cost Sri Lanka billions of rupees, destabilise its energy security, and test the credibility of its new government at the worst possible time.