You can either steam or roast the peppers. I love roasting the peppers on open fire until they are charred. That extra flavor is nice. Place in a bowl and cover with plastic wrap and let it sit for about 10 minutes. The black char skin can be easily peeled off after that
Place the shallots, tomatillos in a steamer and let them steam until soft. Add this along with the peppers into a food processor. Pulse few times into coarsely chopped mixture.You don't want to process into a paste. They should still be pretty "choppy" (rustic looking!)
Preheat a medium-size pan with cooking oil. Add the chili mixture, lemon grass, lime leaves and stir fry until fragrant about 15 minutes or so. Add in sugar and salt. Have a taste. It should be savory. Add more salt to your taste. You may discard the lemon grass stalks and kaffir lime leaves prior to serving