By Harsha de Silva and the United National Party –
Dr Harsha de Silva MP
Summary
The CEB Tariff Proposal (CEBTP) is an unjust attempt to extract LKR 34.2 billion mainly from the poorest 3.6 million of the total 5.0 million domestic consumers of the CEB and LECO.[1] The proposed tariff increases on low income households will be detrimental to their economic welfare given that over 40 percent of the existing consumers are not able to afford even the minimum household electricity requirement.[2] Even though the expected revenue would cut the losses of CEB in the short term the long term adverse socio-economic impact on the segment of people of Sri Lanka that need to increase their use of electricity, not reduce its use, will be significant. It will also create negative externalities in the entire economy. Therefore, PUCSL should come up with a more equitable tariff mix that shifts more of the burden from the low income households to the richer households. The adjustment can theoretically be effected without reducing the expected revenue from domestic customers for 2013.
1. Demand for electricity and benefits accrued to the household
1. Demand for electricity is derived
a. That means, electricity does not yield any utility but rather is an input into appliances that do yield utility; lighting, television, radio, fan etc.
2. In the short-term, electricity demand generally arises from utilization of such appliances while in the long-term demand is influenced by the stock of these appliances
3. The economic benefits of electricity at the household have been documented extensively based on improved consumer surplus
a. These include short term benefits such as increased efficiency in the daily routine to long term benefits such as improved adult earning capacity due to longer study hours during childhood
b.These benefits are larger for lower income households; for instance having electricity and low cost lighting for the first time (electrification) will certainly have a much larger impact than having an additional light bulb in a fairly well lit household and a larger impact than an additional air conditioner in an already fully lit and air conditioned household
4. Therefore, any tariff adjustment must consider the economic impact beyond the simple short term revenue increase to the utility, here CEB and LECO
2. Our focus is on the LOW INCOME CONSUMER
1. The proposed tariff structure is understandably based on multiple considerations both on the supply side and the demand side
a. But for this submission we assume the supply side as given; that is, the cost of generation, transmission and distribution[3] albeit to note the following:
i. The cost of mismanagement in the process of electricity supply must not be recovered and sustained by increasing tariffs
ii. There are numerous allegations of rampant corruption, waste and misuse of resources and any attempt to recover such costs from consumers is unacceptable
2. Our comments and suggestions are therefore strictly focused on the domestic demand (and consumption)
3. Assessment of the demand side
1. In justifying the proposed tariff revision to domestic consumers CEB uses its internal billing data along with a 2,500 sample nationwide study by the University of Colombo[4]
a. It is therefore reasonable to assume that the proposed tariff adjustments have taken in to consideration the salient findings of that study on demand, affordability and consumption data
2. The study finds that a household of 4 persons needs a bare minimum of 48kWh of electricity per month for a ‘decent life standard’
a. The sample study further finds that 42 percent of the CEB and LECO customers are unable to afford even the minimum 48 units per month; they are referred to as ‘electricity-poor’. If the un-electrified households are also included, this figure gets close to 50 percent
3. Separately, CEB data suggests that around 1.1m domestic consumers (of 5m total) use less than 30 units per month while a further 1.3 million use less than 60 units. The sum total of these two poorest groups is 2.4 million customers or 48 percent of all domestic customers.
4. The significant tariff increases prosed for these low income consumers who are even under the present tariffs are unable to afford even the bare minimum essentially electricity-poor consumersusing up to 60 units are as follows:
a. 0-30 units per month; increase is 53 percent
b. 0-60 units per month; increase is 47 percent. The graph below indicates the increases up to 510 units per month
5. Proposed tariff revision is kW-wise but MW-foolish
1. Given the price inelastic nature of electricity use it is not likely that these low income households would reduce use by any significant amount than what they are currently using; albeit less than the even the bare minimum level
2. This But PUCSL must consider if it is possible to
a. Shift more of the burden to higher income groups that use more units per month.
b. Then if possible to reduce peak load demand due to greater elasticity (either lower demand or shifting of demand to non-peak time), can reduce the total cost of production.
3. The proposed tariff increase mix will certainly push low income uses in to further electricity-poverty
a. Given that electricity is derived demand electricity poverty means that these consumers will not be able to use appliances that would help improve their household economy and contribute to national development
4. This strategy is not in the best long-term interest of the nation as a whole and certainly not in the short-term or long-term interest of the respective low income households
5. Can more of the burden be shifted to higher-income groups
1. It is understood that CEB wishes to increase the tariffs for the low users so that it is guaranteed of the revenue increase as they are ‘captive’ as explained earlier
2. But PUCSL must consider if it is possible to
a. Shift some of the burden to higher income groups that use more units per month. But given the higher elasticity the revenue increase may not be as guaranteed as proposed
3. Create an additional user group; 0-45 and thereafter keep to a minimum the increase in the 0-30 category and the 0-45 category
a. Any loss of revenue could either be cross-subsidized by high income consumers by revising the tariff adjustment mix or directly subsidized by the Treasury
6. Could PUCSL propose a targeted subsidy for the electricity poor to the Treasury?
1. If it is not possible to adjust the tariffs and the PUCSL is to propose a direct subsidy from the Treasury it should
a. Be transparent; in that the subsidy must be targeted only to the electricity poor CEB
i. The proposed LKR 1.7 billion by CEB is non-transparent and could very well be subsidizing high-income consumers[5]
b. Be funded via specific electricity vouchers. If so, the electricity-poor can use these vouchers to offset the invoice prepared using the proposed tariff revision
2. The CEB net-metering program could in fact turnout to be a mechanism for the higher income groups to pay less per unit given the expected time-of-day generation and sale to CEB
[1] CEB estimated revenue from domestic customers for 2013 under the proposed new tariff structure is LKR 84.9 billion while it is LKR 50.7 billion under the current tariff. This is in page 9 of the Consultation Document on Proposed Electricity Tariff Revision 2013 http://www.pucsl.gov.lk/english/wp-content/uploads/2013/03/consultation-document-12-03-2013.pdf
[2] Study on Requirements of Prospective Electricity Consumers and Fuel (electricity) Poverty and Affordability, SPARC, University of Colombo, 2011
[3] This assumption does not mean that we agree that the generation, transmission and distribution costs are the most efficient but only that others have already proposed technical arguments for lowering such costs.
[4] Section 3.1: Study on Requirements of Prospective Electricity Consumers and Fuel (Electricity) Poverty and Affordability; April 2011
[5] PUCSL Consultation Document on Proposed Electricity Tariff Revision 2013
Chanakyan / April 19, 2013
The whole burden of the article is that costly electricity should be made affordable to those who can’t afford it. The proposition becomes workable only if the impecunious segments of society are subsidised by the productive sectors of the economy. From subsidised rice starting from 1945 to subsidies, freebies and welfare there is never a change in wisdom. They have ruined the economy and made utilities unaffordable.
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James Bond / April 20, 2013
Harsha, kindly learn some political economic analysis!
The enormity of the electricity price hike is reflective of the enormity of the coming crash of the SL economy – particularly the real estate bubble and it is not going to be a soft landing – unless China cancels all GoSL loans.
The reason for the massive debt of the CEB which is being passed onto the consumer is:
1. the massive and wasteful white elephant infrastructure projects (maintaining the empty Mattala Rajapassa AIRPORT and SEA PORT, Military camps etc which should be closed down to cut running costs),
2. under-performing state enterprises which do not pay their energy bills (Mihn and Sri Lanka Air which should be closed down – staffed by Rajapassa relatives, cronies and Hambantota air hostesses)
3. the Rajapassa development model (massive concrete, over air conditioned high rise apartment complexes and tourist hotels in Colombo which the average Lankan cannot afford)
4. Night races and other sports tamashas, Dayata kirulla and various circuses to entertain the Commonwealth of Clowns and other “international conferences” to bring state-subsidized “tourists” to Lanka and boost the figures.
5. the Rajapassa regime whose so-called minister of economic development, Basil Rajapassa has not got a basic degree and knows nothing about development or economics or how to do quantitative easing.
6. The Rajapassa notion of development is infrstructure- buildings and more buildings without any HUMAN RESOURCES because all the intelligent folks are fleeing the county as refugees and economic migrants – any FDI in Hambantota would first require professional and industrial skilled and qualified human resources which do not exist there since it has rural fisher and agricultuural communities – and hence there will be no FDI investment in Hambantota
5. Hambantota’s so-called development to the scale of Rajapassas MEGALOMANIA is CRASHING THE NATIONAL ECONOMY – the reason for Lanka’s massive DEBT and impoverishment – whose cost is being passed to the poorest in the from of the current electricity hike with much more to come – as you point out.
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Aney Apochchi! / April 22, 2013
James Bond:
And when did you see the light and come out of the darkness of the Rajapassa support state?
Didn’t you, for the longest time, support what this lot were doing? Or have there been two “James Bonds” contributing to CT?
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Leela / April 20, 2013
Dr Harsha de Silva MP,
Without repeating the same old thing that everyone else writes in a round bout way, use your Dr brain and come up with you own practical proposal to cut the cost or improve efficiency if you are smart.
Leela
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Aney Apochchi! / April 22, 2013
Leela:
The simple solution is to dump the lot that caused this mess and continues to make it worse. However, that would inconvenience you in your efforts to shine their boots with your tongue. But then you can’t have everything!
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Wickramasiri / April 22, 2013
That is what he has done Leela.
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quidproquo / April 20, 2013
Dear Dr. de Silva,
Thank you for this most insightful analysis. Now, could you kindly let us know what steps you, your party leader, and your party have taken to generate outrage amongst the 3.6 million poor who will have to bear the brunt of this increase?
Have you translated this knowledge into Tamil and Sinhala and disseminated it amongst the 3.6 million? Any mass scale protests planned? Pada yatras? Marches on Colombo?
*sigh*
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Jayantha / April 20, 2013
Dr.Harsha de Silva,
Please read the following web and see how new electricity rates effect general public.
http://newsfirst.lk/english/node/23250
You will note that the consumers who use more than 90 units are the ones who are mostly affected.
Unit Price 90 X 8.50 = 765
Unit Price 91 X 15 = 1,365
See how the immediate unit after 90 been calculated @ almost double the rate.
Also see the following electricity usage on a very simple house hold.
1000W for one hour is equivelant to 1 UNIT.
—————————————————
Therefore if you have in your home… FIVE nos. 50W BULBS BURN FOR 4 HOURS PER DAY …..it will be …….1000 W = one unit
TV 60 wats. Ceiling fans 60 wats…. burn for 4 hours per day = half unit.
Refrigerator 300 W X 24 hours = 6,000 W (with cutoff temperature condenser) equals 6 units
Therefore for eaach day your minimum units are = 7.5 units per day.
Therefore 7.5 units x 30 days = 225 units usage per month.
Therefore Govt. new Electricity revision has hit mostly to the MIDDLE CLASS although the poor peoples rates been almost doubled.(less than 30 units)
Also Rajapakse Moron did not want the CEB chairman to visit US high commission when he was called for a meeting to discuss this new tariff rates.
MARA the absolute crook uneducated bast….d is just a fake double acting absolute mutt comedian, thinking he knows everything who will eventually will have his fate similar to Gadaffi family.
This is what CB Governor said about Sri Lanka heading for Asia’s miracle.
They could easily give electricity for the same old rates (without a price revision) if the corruption been stopped, but these absolute thieves are robbing our country left and right.
We could have had the best development soon after the LTTE war, but these Tsunami robbers and 10% commission Kakkas were going after mega commissions to award contracts, thereby loosing many projects to build businesses.
This is why you and all opposition parties should keep a close rapport with international community and foreign missions in Sri Lanka to fight MARA’s dictatorial rule.
You should keep a close friendship with International community specially the West as they are the ones who will come to our assistance when we need.
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Senguttuvan / April 20, 2013
Many of us, with the average intelligence we arrogantly presume we have, knew the new Royalty can con their way through in most matters but not the economy. The bottom has to fall out soon – and now it has.
Fuel/Petrol and Electricity are the too mega-mass consuming items. Igt is only taxing them to the hilt covers part of the wasteful extravaganza of this clueless regime. Those two wunderkids of the economy – PBJ and Kabaralal – have done nothing to create wealth in the economy of the country without hurting the poor and the middle class – except fight among themselves.
I am afraid we have to brace against further punishment in the coming months and years as the thin fabric of the economic foundations of the country gradually give way. But it will not be the worst of times for everybody. For those forming the illegal ruling clique and their …lickers it will the Best of Times, as it has so far been.
Senguttuvan
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Dr.Rajasingham Narendran / April 20, 2013
Supplying electricity is not a social welfare measure. Electricity is a vital necessity for modern life. It is a commodity that is sold by the supplier and purchased by the consumer. The unit tarif should be the same across the board. Those wo consume more obviously will have to pay more. Those who cannot afford to pay more, will have to use less. This is how a free market plays out. Free or subsidised electricity should not be supplied to anybody, including religious establishments, the government sector or the politicians. Only schools, universities and hospitals should be provided subsidized power, under strict guidelines as to permissable maximums. There should be regular energy audits on such institutions. This would discourage wastage and profligacy.
The use of LED (Light Emitting Diodes) should be encouraged, by permitting duty free imports. A 3.7 watt unit emitting the equivalent of a 40 watt incandescent bulb, costs Rs 790/= today. This is unaffordable to many. They consume less electricity to produce the same intensity of light , are longer lasting and environmentally friendly. Currently, a three bulb 25 watt ( for each bulb) light emitting capacity solar power units are available in the maket. They cost about Rs 9000 per set. These should be imported duty free. A distributer told me that more powerful units ( 40 watt light emitting capacity per bulb ) are available, but he does not import them because of the higher costs. The main customers for the units he imports are from the Vanni. If bulk imports are encouraged, better prices may be negotiated. The poor households may be provided such units at subsidised prices. Local manufacture of LED and simple solar power units must be encouraged through various incentives. The use of solar lanterns and solar cookers in the rural areas should be encouraged. I have installed a solar cooker in Jaffna and it works very efficiently between 9 am and 4 pm on clear sunny days. However, the utensils used should be black and designed to get heated quickly and retain the heat longer.
Mixed solar power and wind turbine farms should be established in all provinces of the island. Foreign assistance, aid and loans should be create such farms. The latest technology should be deployed. Garbage and bio-mass utilising power generating systems should also be considered for the urban and rural sectors, respectively. Germany should be approached to advice and assist us with such projects.
Further, kitchen appliances, refrigerators, TVs , irons and washing machines are not luxuries anymore. They are vital necessities. To consider them luxuries is an insult the middle income and low income groups. The minimum consumption equation for estimating requirements should include a right mix of these appliances, in addition to the lights.
Further, distribution losses have to be minimised and illegal tapping into power lines must be severely punished. The management and operational costs of the CEB and its affiliates should be reduced and, staff numbers controlled and made more efficient, The power supply system should be run on a strictly business basis, while remembering that it is an essential service.
Dr.Rajasingham Narendran
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Dr.Rajasingham Narendran / April 20, 2013
I forgot to mention, that there should be program to shift to solar powered street lights, all over the island , including Colombo. The present grid dependent street lights should be retained only as a backup on days of inclement weather.
Dr.RN
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marwin / April 20, 2013
Sack immediately all the politically appointed inefficient members of the PUC. They are not able to understand anything about the sufferings of the poor people or even unable to understand the basics of how fares should be adjusted in a justifiable manner to all. If you increase the usage by more than one unit after using 90 KWH your bill will go up by more than Rs 1000 for using that extra one unit (90 +1 KWH). This shows the stupidity of the method of calculation. I am sure even a Grade one student will not do this type of calculation. It is high time all these incompetent members be sacked immediately from the PUC and appoint some qualified accountants, skilled managers and some sociologists to the PUC.
Also all staff in the CEB should be paid the same salary as that paid to others in the similar category working in other government departments and state bodies. Recently they were given a very high salary increase. Was it for their efficiency in running the CEB? You increase their salaries unreasonably and expect the public to pay for their salary increase as well. Hence reduce their salary and allowances to the level of other similar category of workers and also use the savings from this to reduce the electricity bills of the consumers.
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K.A Sumanasekera / April 20, 2013
What a load of Hogwash.
When did this dude derive his sudden affection for the poor?.
The need of the hour is to provide at least a coulple of 60 Watt globes to the rural poor , especially the poor in the remote areas of the North and the East , who have been denied this basic Human Right for thirty years thanks to their cousins who use hundreds of Kilowatts to keep them in comfort.
Electricy price hikes are common in all parts of the World.
Srilanka has been burdened with extra punitive costs thanks to the Mentor and Handler of this new Electricity martyr.
Come up with real time policies , to show the inhabitants that you lot can do better in providing jobs, making more and better roads, better schools, more health care and last but not least how you can keep the separatists at bay with out offering them SGAs, like the ones your Boss offered to Prabakaran.
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Aney Apochchi! / April 22, 2013
Tsunamisekera:
The idiot rides again!
Why don’t you, without trying to display your (non-existent) about electricity tariffs accept the fact that all of this is the result of the highway robbery inflicted upon us and to which the likes of you are active contributors?
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Oh Danny boy / April 20, 2013
I ALWAYS WANTED TO HAVE CANDLE LIT MEALS, COOKED ON OPEN FIRE IN CLAY POTS.
THANK GOD IT IS HAPPENING AT LAST.
T V, FRIDGE, FAN, ELECTRIC LIGHTS, COMPUTERS, MOBILES, ARE NOT A NECESSITY.
SIT IN THE SUNLIGHT, MOONLIGHT UNDER THE TREES AND ENJOY OURSELVES.
WE SURVIVED WHEN WE WERE YOUNG, WHY NOT NOW.
PLAY INDOOR AND OUTDOOR GAMES, CLIMB ALL FRUIT TREES, CYCLE AND SWIM IN THE SEA, RIVERS, LAKES ALL AROUND THE ISLAND.
BOYS SCHOOLS COULD PLAY PING PONG WITH THE GIRLS SCHOOLS.
GO BACK TO THE GOOD OLD DAYS AND TEACH THESE SARONG JOHNNIES IN THE PARLIAMENT A GOOD LESSON.
WHO WANTS TO SIT INDOORS AND SHIT OURSELVES TO DEATH.
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Jayantha / April 21, 2013
Yes start oiling the “gon karatte” bullock cart, “polkatu” coconut shell iron, saw dust cooker and Peacock to travel abroad.
I think opening Mattala Airport which consumes huge power to AC, light op and service the huge building 24 hours a day 365 days could be a huge power drainer. Also over 100 Kilometres of lighting roads, runway and the the surrounding may be consuming a heavy load.
GOSL has to reveal the consumption of electricity to Mattala airport and the surroundings.
May be people in surrounding areas could stay at airport watching free TV, Electricity and AC which are available 24 hours a day.
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