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Power
crisis: Worst yet to come
(Reproduced
from Daily Mirror of February 20, 2002)
Dr.
Tilak Siyambalapitiya electrocutes top deregulation forum with shocking
revelations
By
Nisthar Cassim
If
the people had thought that the power crisis was at its peak at present
then they are in for a shock as the worst is yet to come according to a
top energy expert.
Resource Management Associate Managing Director Dr. Tilak Siyambalapitiya
literally electrocuted leaders in both the public and private sector
including several Ministers present at a top deregulation conference held
during the weekend at Marawila with some shocking revelations, which
prompted Deregulation Committee member Cubby Wijetunga to describe the
power presentation as the "most frightening" of all.
In a nutshell, Dr. Siyambalapitiya said that the current power crisis was
due to inaction and indecision in the past and not because of low rainfall
in catchment areas. He warned that a worse crisis was expected from 2004
till 2010 with much longer power cuts and the Sri Lankan public probably
paying the highest tariffs for electricity in the world if urgent are
actions are not taken immediately. He forecast a severe shortage in an
economic environment of an average GDP growth of 5% and demand for
electricity growing at the historical average of 7 to 8% per annum. Dr.
Siyambalapitiya expects electricity tariffs to be increased from May 2002.
"The CEB is unable to or not allowed to implement new generation
projects in their long-term plan," Dr. Siyambalapitiya said adding
that the overall energy sector is characterized by several inherent
weaknesses such as pricing not reflecting the true costs, poor employee
productivity, high operating costs, lack of competition while the
electricity sub-sector had been plagued by recurrent shortages of
generating capacity (in 1979, 1983, 1987, 1992, 1996, 2001-2).
With regard to regulation he said that the electricity sub-sector had seen
only limited liberalisation in generation with only six Power Purchase
Agreements (PPAs) and over 15 small power producers (mini-hydro) and entry
into the sector was limited by a solicitation process and licencing while
no licences were granted for public distribution. "Since the PPAs fix
prices for 10 to 20 years there is no effective competition while all
decisions have to be approved by the Government," Dr. Siyambalapitiya
said in his paper presented at the two-day deregulation conference
organised by the private sector comprised Deregulation Committee appointed
by the Ministry of Enterprise Development, Industrial Policy and
Investment Promotion. Over 200 persons participated including key
Ministers, officials, business leaders, professionals, donor agencies and
the media.
He said that coal power was critical to ensure a reliable and
cost-effective supply and five major power projects were needed overall to
meet the medium to long-term electricity needs of the country. Work
connected to these projects must start now.
It was pointed out that at present one would see ceremonial openings or
commissioning of power projects. "The public should not be misled
that those are solutions to the current crisis but on the contrary those
are the causes," he added.
The Norochcholai coal plant is currently three years late and still there
is no decision with the country considering a shift of the site for the
third time having moved it from Trincomalee to Matara. He also said that a
second coal plant was needed and now was the time make decisions as it
takes five years to build and two years to find finances; but knowing the
Sri Lankan mindset and regulatory framework Dr. Siyambalapitiya said it
would be late.
He said that the impact of the prolonged delay and indecision is power
cuts and/or high electricity prices until 2010 to 2012. He said that the
cost of the six-year delay in the Upper Kotmale is Rs. 4 billion worth of
electricity lost every year while delay in the combined cycle plant has
ensured power cuts and higher electricity prices from 2004 onwards.
It was emphasised that major and simultaneous decisions were required
immediately to arrest the power crisis and noted that such decisions are
mutually exclusive rather than complementary to each other. He said that
the CEB in 2000 earned Rs. 15.2 billion for the Government but its
eventual loss was Rs. 16 billion. Dr. Siyambalapitiya estimated the value
of the total energy market to be over Rs. 100 billion in 2000 with
petroleum worth Rs. 76 billion, electricity Rs. 28 billion, LPG Rs. 5
billion (forecast) and biomass Rs. 1 billion. In all these sub-sectors
there are no regulators.
He said that the objectives of deregulation and liberalisation should be
to ensure lower prices and transparent pricing, higher reliability of
supply, improved services and customer care, higher state revenue and
employee productivity. It was opined that at present the Government is the
owner, operator and regulator and these roles must be separated and a
strong regulator and effective competition should be established.
The prospect of an electricity tariff revision is likely he said, if the
Government is keen to ensure the viability of the CEB. It was indicated
that 100MW of emergency power was being bought at around Rs. 8 per kWh
while at present electricity is sold at Rs. 3.80 per kWh for households
and over Rs. 4 per kWh for industrial customers whereas the cost of
generation and supply is Rs. 8.40 per kWh.
Dr. Siyambalapitiya in his paper done in partnership with Noel
Selvanayagam of Senok Power and Energy Ltd., said that the energy industry
in Sri Lanka is by no means efficient or reliable. "State monopolies
with their inherent inefficiency have not been able to hold customer
confidence."
The paper also called for restructuring and liberalisation of the industry
though with or without liberalisation the industry needs a strong
regulatory framework.
At the forum, CEB's non-executive Chairman Maxi Prelis explained that when
the new administration took over the CEB didn't have hydropower and money.
"The ship was on fire and the new administration had to first
extinguish the fire," he said. He pointed out that power cuts
unfortunately were the best option though they caused inconvenience and an
incentive scheme for private sector self-generation was in place along
with the purchase of emergency power. He said that reducing staff or
overheads would not help very much in improving the bottom line, as the
total overhead cost per unit of electricity generated is 90 cents
inclusive of 60 cents of personnel cost.
In summarizing the energy sector discussions the deregulation committee
Chairman Dr. Bandula Perera said that in the case of petroleum,
restrictions on private sector activity can go and in the case of
electricity proposed coal fired plans should start now. Preparation of
environmental impact assesments for three more locations should also start
now.
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Last Updated
Date: September 25, 2003
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