By Kumar David –

Prof. Kumar David

Part II of III: Colossal overruns will open-circuit the fiscal deficit

Criticism is an opportunity for correction; Britain just revoked its stop order on the 3200MW, GBP 18 billion, Hinckley Point C nuclear power station. It will be tougher in Lanka due to multiple pressures, some reasonable, some naïve, others venal. The government has no clue what it is doing and is in a muddle. Following last week’s piece on principles of planning I will devote this one to current concerns; next week’s finale will be on sector restructuring.

The authorities confessed in court last week that they would dump the proposed joint venture coal-fired project with India. This may also be the first step to privatising the CEB and opening the power market to the private sector as in the infamous oil power scams of the 1990s. It’s naïve to think it is only loss making state enterprises the government plans to privatise; it’s the most profitable ones that the private sector salivates after. Domestic and foreign LNG lobbies seem to have influence in the Power Ministry and at even higher levels. I am not opposed to private participation in power as Part III will clarify next week, but 1990s style subterfuge is not acceptable.

The Sampur Coal Power Project (SCP), which is ready to take-off, is a joint venture between the CEB and India’s NTPC (National Thermal Power Corporation). It is a 50:50 joint venture named Trincomalee Power Company (TPC). It has been incorporated and financing agreed ($75 million from each side, $600 million to be raised in capital markets). Engineering designs have been finalised and environmental approval partially secured. It was ready to go; now it is kaput!

Had SCP gone ahead the private sector would have been cut out for a decade. Domestic and foreign LNG vendors, now circling for huge turnkey contracts, would have been setback. Had vested interests been the only issue I would have opposed cancelation outright, but there is another reason for ambivalence, environmental concerns. (Arrogant and self-righteous environmental high priests, driven by indigestion to colic, and simple minded tunnel-vision evangelists, can be prudently disregarded and attention steadfastly focussed on real environmental worries). There is a better tactic than termination of SCP though arguably it should be our last coal project, unless coal gasification or ultra supercritical combustion with sequestration or pressurised fluidised bed combustion become economically viable.

Short-circuit at Sampoor

The monumental blunder will cost Lanka a cumulative Rs.200 billion (not million!). Tax payers or electricity consumers will eventually pay; in the meantime debt will mount. SCP has been deferred repeatedly (as Norochcholi was in the 1990s oil power scams) but had this 2016 knockout not been administered and a green light given, two 250 MW units would have come on stream in 2020 and 2021. Now Lanka faces power shortages in 2018 if the economy blossoms, 2019 otherwise. So old Satan, oil power, is to be rushed into service; 170 MW of diesel engines and 105 MW of oil fired turbines; both presumably private power contacts. There will be huge fuel cost overruns compared to what SCP electricity would have cost. Electricity price increases are as inevitable as sunset.

The Rs.200 billion is made up as follows – Rs.180 billion for oil power (over and above the cost of coal power) up to 2025, and Rs.20 billion capital for the diesel engines which have to be mothballed when LNG comes on stream. The turbines can be converted from oil to gas if LNG reaches the West coast – but not if LNG is landed in Sampoor. Actually 2025 is an optimistic date since power-plant and harbour location disputes have to be settled, financing found ($480 million for a land-based harbour, $350 million for a 300MW gas-fired power station cum basic transmission), environmental approval secured, engineering designs executed, and harbour and power plant construction completed. It would surprise me if the plant delivers power by 2025 and the additional cost attributable to oil over coal or gas for each year of delay beyond 2025 is Rs.37 billion.

There is no dispute that coal should be eased out. This is why China and India which plan to install hundreds of thousands of MW of coal power in the next 20 years, nevertheless, will reduce the increments to zero and eventually decommission all. They take a balanced long-term view despite being the world’s largest and third largest gross greenhouse gas emitters – the US is second. Per capita China emits 6.6 tons of carbon dioxide per year, the US 16.2, Germany and Japan about 9.5 each and India 1.5 tons. Sri Lanka’s per capita emission is a mere 0.7 tons per year; 60% from the transport sector and 30% from the electricity sector. Even if we double our emissions, which I certainly do not advocate, we would still be way below our international obligations.

The problem is not greenhouse gases; we make a minuscule contribution to global warming. The problem is local; it is the misery of people living in the immediate vicinity (up to 3km downwind of Norochcholi). The CEB has unpardonably neglected this environmental obligation. The horrible truth is fine fly-ash (alu like when you completely burn down firewood) which is carried by the wind from the 5 acre ash dump beside the power station. With the right waste management tools the CEB could have circumvented the problem. World class plant (Japan, Hong Kong, Taiwan) control ash and eliminate coal dust. Locals from Sampoor who visited villages downwind of the Norochcholi ash dump will never agree to live near a power station even if the CEB promises the sun and the moon about new technology. “Why should we trust them?” they rightly ask. Once bitten twice shy.

(Heavy metals like mercury residues of coal firing, and particulate emissions are a health hazard. They can be trapped and prevented from getting into groundwater and soil as done elsewhere. This pushes up cost; ash, coal dust and heavy metal control adds about 15% to electricity prices).

We have to take an overview; a cumulative cost of Rs200+ billion, no greenhouse gases above Lanka’s international obligations, advanced containment technologies at a price, but a life distressing calamity for the local population, or what? If we cut the crap the options are candid; either scarp the project or pay to resettle local people in good quality alternative homes and lands.

What would that cost? Let’s calculate on a per 1000 family basis (Minister Swaminathan estimated 825 families in June 2015). If it takes Rs 1 million per family to relocate to new homes and lands (plus schools, health and transport services), 1000 families will require a Rs 1 billion commitment. That’s two orders of magnitude below Rs200+ billion. Even if the number of families and cost per family were two or three times higher, the total cost is still comparatively tiny. Some families may prefer to take the money and make their own plans. Ignore the evangelicals; they are engaged in great battles of principle nearer nirvana. The point is what’s better; SCP with tighter environmental controls plus one or two billion rupees for resettlement, or no SCP and Rs200 billion in added power costs? You the public choose; I can only lay out the options. It’s your problem!

The longer term

The Simplified Table provides a comparison – for a Full Engineering Table click here

The tables compare a remote coal station (not necessarily at Sampur) with West coast LNG. But before that I must make a point about greenhouse effects. Research shows that coal and gas fired electricity have equally bad greenhouse effects. Methane is many times worse than carbon dioxide in greenhouse entrapment. Even in the US it has not been possible to reduce methane leakage to below 3%; hence the damage per kWh is no different between a gas-fired power station and a modern high-tech coal plant. The differential environmental dispute is the aforesaid effect on nearby populations.

I take responsibility for the data in the tables though much of it and the calculation procedure follow a CEB Excel program. However I am not dependent on this stakeholder; algebra and the laws of physics are invariant, results are data driven. Column 1 is for a traditional coal plant like SCP, column 2 is for one unit of a four-unit high-efficiency environmentally clean coal plant proposed by the Japanese as Sampur stage-2. The third and fourth columns are for LNG located in the Western Province (only a nincompoop will locate an LNG power plant in Sampur). Column 3 is for a cheaper floating terminal (which entails $50 million annual rental) while column 4 is for a large land based terminal. Sensitivity of electricity price to gas prices is included in the Full Engineering Table. By matching FET results with those in the Simplified Table in this text the effect of small difference in assumptions can be seen to be inconsequential.

The choice between the two types of LNG terminal depends on whether gas will be found in exploitable quantities in the Gulf of Mannar. If ‘yes’ a floating terminal which can be folded up and returned is better. The switch of electricity generation to gas cannot be economically justified because of large harbour investments entailed unless a switch of transport and industry to gas is envisaged. This is crucial but not sufficiently appreciated.

Financially coal is cheaper than gas; roughly speaking coal power will cost Rs10 to Rs11.50 per kWh, LNG power Rs12.50 to Rs15.00. But the great unknown is the unpredictability of fuel prices in the next decades, so it’s a bit of a toss up. Fuel prices may move in tandem, so comparative estimates are more reliable than absolute ones. Taking the median and current prices as a rough guide, coal power is Rs10.50 per kWh, LNG power Rs13.50 per kWh. These financial costs are not much changed if the costs of human resettlement discussed previously are included.

One further matter warrants mention; consequences of careless decision making on relations with India. When the Indian PM was asked “Please abandon coal and agree to LNG as an alternative” he is reported to have responded to this capricious tinkering with the diplomatic equivalent of “This is not like flipping your breakfast order between scrambled eggs and omelette”. Mr Mody had been briefed by professionals, our leader by novices and quacks. I don’t know if fences have since been mended.