Colombo, Sept 30 (NationPress) A report from the U.S. Department of State reveals the exit of Adani Green Energy from a proposed $400 million wind energy initiative in Sri Lanka, illustrating the difficulties encountered by foreign investors because of the erratic policies of the government led by President Aruna Dissanayake, which assumed power in 2024.

According to the report, "Foreign investors frequently cite elevated transaction costs, erratic policies, and unclear procurement processes."

In February 2025, the Indian company Adani Green Energy withdrew from the planned $400 million, 484 MW Renewable Energy Wind Farm project in northern Sri Lanka, attributing its decision to the Sri Lankan government’s attempts to renegotiate a previously awarded contract.

The report indicates that President Dissanayake's administration aimed for reduced unit prices for electricity, which Adani Green deemed unfeasible following the project's earlier endorsement under the prior administration.

The U.S. 2025 Investment Climate Statements report notes that while Sri Lanka shows signs of recuperation from its 2022 economic crisis, the nation’s "investment climate remains challenging."

This is despite a more stable political environment following the sweeping 2024 electoral success of President Dissanayake and his National People's Power (NPP) coalition.

The report elaborates that while the NPP coalition backs a $3 billion IMF program, apprehensions persist regarding its historically Marxist and anti-Western stance.

Overall, investors contend that doing business is still fraught with difficulties, regularly voicing concerns about project reversals, regulatory changes, sluggish decision-making, and inadequate support for established businesses.

Adani proposed the most competitive tariff of 8.26 cents per unit after two years of discussions. Although the tariff was denominated in U.S. dollars, payments were to be made in Sri Lankan rupees, offering a significant advantage by preventing foreign exchange strain on the island’s fragile economy.

Ultimately, the Adani Group concluded that it would be more advantageous to allocate its resources to other, more promising nations such as India, where renewable energy projects are flourishing, and governmental regulations are less obstructive.

Reports indicate that Sri Lanka pressured Adani to reduce its tariff to below 5 cents, a proposition deemed unviable by the Adani Group. The nation has yet to secure a single developer willing to undertake the project at that rate.

The Adani Group has continued its renewable energy initiatives outside Sri Lanka and currently has over 15 GW of renewable energy capacity operational, with plans to expand to 50 GW by 2030, positioning itself among the top three global renewable energy players.

Adani's investment, which included the establishment of transmission infrastructure for the wind project, would have exceeded $1 billion.

According to the report, foreign direct investment (FDI) in Sri Lanka remains restricted, with most transactions falling within the modest $3 to $5 million range.

Despite the government's target of $5 billion in FDI for 2025, seasoned investors stress that policy stability, regulatory reforms, and enhanced transparency are essential precursors to any significant increase in large-scale investments.

The report notes that U.S. firms are still scouting opportunities in sectors like ICT, energy, aviation, and defense.

Nonetheless, regulatory unpredictability, bureaucratic obstacles, and selective transparency continue to hinder broader participation. The Sri Lankan government’s ability to foster an open investment climate remains limited, despite positive rhetoric.

Moreover, the IMF and local business chambers emphasize the necessity for comprehensive structural reforms, encompassing trade facilitation, digitization, and enhanced governance mechanisms.

Stating that Sri Lanka's enforcement of foreign investment policies is inconsistent, the document notes that the Board of Investment (BOI) struggles to operate as a "one-stop shop" due to fragmented authority across various government departments, resulting in prolonged approval processes that frustrate prospective investors.

"Other significant barriers include excessive regulations, legal ambiguity, and inadequate bureaucratic responsiveness," it states.

The shift in policy regarding the privatization of loss-making state-owned enterprises, particularly the Ceylon Electricity Board, obstructs the development of cost-effective energy supplies essential for industrial operations, according to the report.

The NPP government publicly expresses a desire for inward investment. In January 2025, President Dissanayake pledged to finalize a $3.7 billion Sinopec oil refinery project, which would be the largest FDI project in Sri Lankan history, to be situated next to the Chinese-controlled Hambantota International Port.

However, many potential investors remain hesitant to commit due to these ongoing mixed messages. Some senior government officials frequently criticize private sector-led economic growth and overtly endorse state-owned collectivism as the preferred investment model for the country.