By Asoka S. Seneviratne –

Prof. Asoka.S. Seneviratne

“Institutional failure rarely announces itself; its costs are ultimately borne by the public.” — Inspired by Amartya Sen’s governance and welfare economics framework

Sri Lanka is once again confronted with a crisis that is neither external nor inevitable, but fundamentally institutional. The controversy surrounding the Lanka Coal Company reflects more than a breakdown in procurement; it reveals a deeper erosion of governance within a strategic state-controlled entity. At its core lies a simple but powerful reality: when institutions entrusted with national responsibility fail, the consequences are transferred directly to the state and ultimately to the people. However, the institutional failure is hardly seen, so that the opposition directly attacked the Energy Minister and the government as a whole on the basis of fraud, often without sufficiently examining the institutional layer where procurement decisions and technical failures actually occur. The true picture was exposed at the recent COPE meeting which was of course a shame due to many reason. Indeed, officials including the chairman entrusted with responsibility must discharge their duties with unwavering diligence, precision, and accountability, leaving absolutely no room for doubt, negligence, or questioning. When this standard is upheld, institutional credibility is strengthened, and the authority and integrity of their superiors are naturally safeguarded. On the other hand, most importantly, any negligence or dereliction of duty must trigger immediate and uncompromising legal action. Accountability cannot be delayed, diluted, or negotiated. Hence, those found responsible must face swift and proportionate punishment. Only through firm, visible enforcement can public trust be protected, restored, and sustained.

The Strategic Intent Behind the Lanka Coal Company

The Lanka Coal Company was established to perform a critical national function: ensuring the efficient, transparent, and reliable procurement of coal for base-load electricity generation. In a country where coal power remains one of the most cost-effective sources of electricity, this role is not peripheral—it is central to the stability of the entire energy system and, by extension, the broader economy.

The company was never intended to function as a routine administrative office. It was designed as a strategic national institution, positioned at the core of energy security, cost management, and macroeconomic stability. In practical terms, its performance directly determines whether electricity remains affordable, whether generation remains reliable, and whether the state is exposed to unnecessary fiscal pressure.

When an institution of this nature fails, the consequences cannot be treated as isolated operational shortcomings. They represent a breakdown in a key pillar of national economic governance. It is therefore clear that the present crisis is not the result of a flawed institutional design. It is the result of failed execution, weak oversight, and the absence of enforceable accountability at the very point where discipline matters most.

From Operational Lapses to Systemic Breakdown

Recent disclosures before COPE have brought to light serious concerns regarding the functioning of the Lanka Coal Company, including weaknesses in procurement oversight, irregularities in quality verification, and deficiencies in supply management practices. These disclosures are not routine administrative observations; they reflect fundamental failures in systems that are expected to operate with the highest level of discipline, given the strategic importance of coal procurement for national power generation.

When an institution entrusted with safeguarding the country’s energy security is compelled to account for such lapses before a parliamentary oversight body like COPE, it raises profound concerns about governance standards. In any responsible organization handling critical national resources, such disclosures would be regarded as deeply troubling and unacceptable, as they directly undermine public confidence in the integrity of procurement processes. At the very least, they signify a serious reputational setback for an entity entrusted with billions of rupees of public interest expenditure.

These failures are not merely technical deficiencies. They represent a collapse in institutional accountability, where procedures exist but are not enforced, and where responsibility is diffused rather than owned.

The Economic Transmission of Institutional Failure

The consequences of these failures extend far beyond the company itself. There is a clear and unavoidable economic transmission mechanism through which poor procurement decisions translate into national cost. When substandard or improperly verified coal is accepted, the efficiency of coal-fired power generation declines. This reduction in efficiency leads to lower electricity output from base-load plants, creating a supply gap that must be filled through more expensive alternatives, particularly diesel-based generation.

This substitution significantly increases the overall cost of electricity production. The financial burden does not remain within the company; it is absorbed by the government and eventually passed on to consumers through higher tariffs or indirect fiscal pressures. In this way, an institutional failure within a single entity evolves into a macroeconomic issue affecting the entire country.

Government as the Bearer of Institutional Cost

In the present context, the government has effectively become the financial bearer of the Lanka Coal Company’s shortcomings. When procurement failures occur within such a strategically important but relatively low-visibility institution, the state is compelled to absorb the resulting inefficiencies—whether through increased generation costs, emergency fuel purchases, or tariff adjustments. This dynamic transforms what is essentially an institutional and operational failure at the procurement level into a broader fiscal and political burden on the government.

At the same time, the public narrative has become increasingly distorted. While the root issues appear to lie within the operational and governance weaknesses of the procurement entity itself, political accountability has been directed almost entirely at the ministerial and cabinet level. The opposition, both inside and outside Parliament, has attributed broad allegations of large-scale fraud and mismanagement directly to the Energy Minister and the government as a whole, often without sufficiently examining the institutional layer where procurement decisions and technical failures actually occur.

This has created a significant gap between the locus of operational failure and the focus of political blame. A technically complex and relatively less visible institution has effectively become the center of a much larger political controversy, while the structural weaknesses within that institution receive comparatively limited scrutiny. The result is a skewed public perception in which responsibility is projected upward, rather than accurately traced to the point of failure within the system.

The critical issue, therefore, is not only that the government bears the financial cost of institutional failure, but also that it bears the political cost of a misdirected narrative. This raises serious questions about governance clarity, institutional accountability, and the need for a more accurate public understanding of how state-owned enterprise failures translate into national fiscal and political consequences.

Accountability and the Limits of Administrative Tolerance

If the current situation is to have any meaningful or constructive outcome, it must begin with a fundamental redefinition of accountability. Where officials (in fact, the chairman of the Lanka Coal Company did not attend the recent COPE  meeting which is a huge gap, while the General Manager was seen uncomfortable) have failed to perform their duties—whether through negligence, incompetence, or deliberate misconduct—there must be clear, timely, and unavoidable consequences. In public administration, responsibility cannot remain an abstract principle or a rhetorical commitment. It must be translated into enforceable action through administrative mechanisms, and where necessary, through legal proceedings without hesitation or exception. Accountability must be operationalized, not declared; enforced, not implied. Anything less reduces governance to symbolism and signals tolerance for failure at precisely the point where discipline is most required.

The absence of accountability does not merely perpetuate inefficiency; it institutionalizes it. When failures are not corrected and responsibility is not enforced, the system sends a powerful message that performance is optional and consequences are negotiable. Over time, this erodes governance standards, weakens institutional discipline, and ultimately undermines public trust in the state itself. Indeed, officials entrusted with responsibility must discharge their duties with unwavering diligence, precision, and accountability, leaving absolutely no room for doubt, negligence, or questioning. When this standard is upheld, institutional credibility is strengthened, and the authority and integrity of their superiors are naturally safeguarded.

A Preventable Outcome, A Necessary Turning Point

What makes the present crisis particularly significant is that it was entirely preventable. A procurement system grounded in transparency, technical rigor, and institutional discipline would have ensured proper supplier selection, credible quality verification, and uninterrupted supply. Under such conditions, the chain of events that has now translated into higher electricity costs and mounting fiscal pressure would not have materialized.

This moment must therefore be treated not merely as a crisis to be managed, but as a decisive turning point for structural reform across state institutions. The lessons arising from this episode must go far beyond the Lanka Coal Company. They must translate into a systemic correction in how strategic state-owned enterprises are governed, supervised, and held accountable.

In particular, the objective must be to ensure that failures of this nature do not repeatedly surface before oversight bodies such as COPE. This requires more than post-facto scrutiny; it demands preventive governance architecture—stronger procurement safeguards, independent technical verification mechanisms, real-time audit oversight, and clearly enforceable accountability frameworks at every stage of decision-making.

Without such reforms, the same pattern of institutional failure will continue to reappear in different forms, shifting from one entity to another while the public bears the recurring cost. The true lesson, therefore, is not simply about identifying what went wrong, but about ensuring that the system is redesigned so that such failures are structurally prevented rather than retrospectively exposed.

Most importantly, any negligence or dereliction of duty must trigger immediate and uncompromising legal action. Accountability cannot be delayed, diluted, or negotiated. Those found responsible must face swift and proportionate punishment. Only through firm, visible enforcement can public trust be protected, restored, and sustained.

The National Cost of Institutional Failure

The Lanka Coal Company controversy is not an isolated administrative issue; it is a clear illustration of how institutional weakness translates into a broader national economic burden. When a strategic procurement entity fails to perform its core responsibilities with discipline and integrity, the consequences do not remain confined within the organisation. Instead, they are transmitted upward to the fiscal system and ultimately absorbed by the public.

Had the company fulfilled its mandate effectively, with proper procurement standards, credible verification processes, and uninterrupted supply management, the present crisis would not have emerged, and the government would not be carrying the resulting financial burden. This is therefore not merely a question of operational inefficiency, but of systemic failure with measurable national cost. The lesson is both simple and profound: when state institutions fail, the cost is never internalized by the institution itself. It is externalized to the government, the economy, and ultimately to every citizen who bears the consequences through higher prices, fiscal strain, and reduced economic stability.

Summary & Conclusion.

This analysis shows that the Lanka Coal Company crisis is not an isolated procurement issue but a systemic governance failure with direct economic consequences. Weak institutional discipline has translated into higher electricity costs, fiscal pressure, and politically distorted accountability. The real failure lies not only in procurement systems, but in the absence of enforceable consequences within state institutions. Unless governance is structurally reformed, similar crises will continue to emerge—each time with the same result: institutions fail, but the nation pays. In particular, the objective must be to ensure that failures of this nature do not repeatedly surface before oversight bodies such as COPE. This requires more than post-facto scrutiny; it demands preventive governance architecture—stronger procurement safeguards, independent technical verification mechanisms, real-time audit oversight, and clearly enforceable accountability frameworks at every stage of decision-making. Indeed, most importantly, officials entrusted with responsibility must discharge their duties with unwavering diligence, precision, and accountability, leaving absolutely no room for doubt, negligence, or questioning. When this standard is upheld, institutional credibility is strengthened, and the authority and integrity of their superiors are naturally safeguarded. Most importantly, any negligence or dereliction of duty must trigger immediate and uncompromising legal action. Accountability cannot be delayed, diluted, or negotiated. Those found responsible must face swift and proportionate punishment. Only through firm, visible enforcement can public trust be protected, restored, and sustained.

*The writer, among many, served as the Special Advisor to the Office of the President of Namibia from 2006 to 2012 and was a Senior Consultant with the UNDP for 20 years. He was a Senior Economist with the Central Bank of Sri Lanka (1972-1993). He can be reached via asoka.seneviratne@gmail.com