23 September, 2020

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On The Not So Natural Rise Of Electricity Prices

By Kath Noble

Kath Noble

One of the many conspiracy theories that has emerged with regard to the anti-Muslim campaign of the Bodu Bala Sena and others is that it is an attempt by the Government to distract people from other concerns, primarily the state of the economy.

If so, it isn’t working. Last week’s increase in electricity tariffs hasn’t been overlooked by anybody in Sri Lanka.

However, the Government has succeeded in convincing a fair share of the electorate that it isn’t really its fault. Keheliya Rambukwella summed up its argument at the regular media briefing on Thursday. He explained that the tariff increase was unfortunate but unavoidable, since ‘no administration can subsidise utilities forever’.

This sounds reasonable, but it isn’t actually true.

The concept of ‘breaking even’ doesn’t make sense when discussing a public enterprise. The CEB is not a company. We have come to talk of its ‘losses’, but this is to accept the neo-liberal logic that the Government claims to reject. The Ministries of Health and Education also spend more than they earn, but we don’t consider them to be ‘indebted’.

In that sense, the Opposition is right in pointing out that the Government is neo-liberal, as its economic affairs spokesman Harsha de Silva did in response to the hike. Of course he should have said ‘also neo-liberal’, since the credentials of the UNP as the vanguard of neo-liberalism in Sri Lanka are unquestionable, thanks to Ranil Wickremasinghe. Unfortunately, he combined that accurate observation with a totally misguided suggestion as to what to do about it, saying that if the economy is in so much trouble, what is needed is austerity.

Even the IMF is having second thoughts about ‘cuts’ as a response to a downturn, as its advice to the UK just days ago shows, with that country on the verge of an unprecedented ‘triple dip recession’.

Austerity isn’t the same as tackling waste and corruption. There is a difference between ensuring that expenditure is productive and targeting an overall reduction in expenditure.

In the same way, there is a difference between targeting subsidies so that the right people benefit and reducing the level of subsidies.

This is not to suggest that there is no problem with the amount that the Government spends on the CEB. It comes to 0.8% of GDP, which is an awful lot in comparison with the 1.9% that it allocates for education and the 1.3% that it gives to health.

Efforts should certainly be made to reduce this amount.

In terms of costs, Tilak Siyambalapitiya has produced a very succinct analysis (‘Talk sense about electricity costs and prices’, The Island, March 6th). He says that the approved cost of Rs. 2.56 for distributing a unit of electricity, which includes the cost of investment and maintenance of the distribution network and the supply of electricity, including metering and billing, is comparable with international norms, but could be brought down by 1% per year in real terms. A similar conclusion is reached for the transmission of a unit of electricity, with an approved cost of Rs. 0.73. He makes the same assumption as Keheliya Rambukwella that expenditure should be met by income to conclude that a unit of electricity has to be generated for Rs. 10.74, taking into account 12% losses and a total income of Rs. 15.50 per unit (10.74 = 0.88 x [15.50 – 2.56 – 0.73]), which is the case only for the CEB owned hydro and coal power stations.

An equally helpful discussion of prices is needed. The Rs. 15.50 per unit charged by the CEB is an average, and the way in which the burden should be shared is not obvious.

In response to the hike, everybody from bakers to the manufacturers of bathroom tiles have said that they will have to increase the prices of their products to compensate. This has to be taken into account in deciding who should pay how much.

Unfortunately, this is not going to happen by itself.

The Government carefully avoids debate of ‘zero-sum games’. It doesn’t want to admit that it makes choices between different groups in society, since that would mean alienating somebody. It prefers us to believe that all situations are ‘win-win’ or at least ‘lose-lose’.

This is equally true of taxation, and we should remember that the 0.8% of GDP that the Government spends on the CEB is only a problem because the share of taxation is so low and falling.

We may assume that the reason the Government has still not published the report of its Presidential Commission on Taxation, submitted to Mahinda Rajapaksa way back in 2010, is that it doesn’t want to upset people who really ought to be paying more. It thinks that it can get away with collecting almost everything from taxes on goods and services, rather than taxes on incomes, which is very bad news for people with low or no incomes.

High income earners not only pay relatively little in taxes on goods and services, they also pay relatively little for electricity.

The JVP raised another important point with regard to the electricity tariff hike. Its spokesman asked why the Public Utilities Commission bothered to hold a ‘consultation’ when it paid absolutely no attention to the opinions of anybody who participated.

Its report makes amusing reading. An unfortunate employee clearly wasted a very long time summarising the suggestions of the 275 people who either sent a written submission or made a presentation at the public hearing. Every single one of them is marked ‘no’ or ‘no comment’. Even proposals to ‘reduce corruption in the CEB’ are ruled out.

Given that the public has to pay for the opportunity to express their ideas, this is more than a little disappointing.

However, it is hardly surprising.

The Public Utilities Commission was established by the administration of Ranil Wickremasinghe, as part of its effort to privatise the CEB.

By now, everybody knows that this is a policy that has failed in many countries.

Even the Government has accepted that the private sector cannot help with electricity. At the media briefing, Keheliya Rambukwella also confirmed that it would be progressively reducing its purchases from the private sector, in favour of CEB owned power stations. If only it had worked this out earlier!

Also, it doesn’t seem to have understood why, since it is cheerfully pursuing exactly the same policy of privatisation in even less appropriate sectors of the economy.

Most extraordinarily, last week it was reported that the Government is to sign agreements with companies interested in investing in medical equipment such as MRI and CT scanners to be installed in public hospitals. The Secretary to the Ministry of Health was careful to explain that these services would continue to be free at the point of use – the Government will pay the owners of the machines according to the number of patients treated. How on earth they can’t see that this will end up in the Government spending more than if it had bought the machines itself is a mystery.

It may not be long before the Government thinks that the country’s health needs can just as well be met in private hospitals, in much the same way as it is so eager to have private universities cater to its education needs.

A little more attention to the state of the economy is therefore most certainly needed.

That doesn’t mean that the Bodu Bala Sena and others can be neglected, since they present a very serious immediate danger to society. However, what could very easily be ignored are the rest of the conspiracy theories that surround the anti-Muslim campaign. Far more likely than it being the work of Norway or Israel or India or the United States or any other country is that Sri Lankans have created this problem all by themselves. In any case, nobody else is going to solve it.

*Kath Noble’s column may be accessed via http://kathnoble.wordpress.com/. She may be contacted at kathnoble99@gmail.com.

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WikiLeaks: What the US is doing to us is shocking – Central Bank Governor

WikiLeaks: GOSL refused salary hike – then because of the war and now because of the IMF

WikiLeaks: In Reality Economic Decisions Are Made By Brothers

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Latest comments

  • 0
    0

    interesting article

    • 0
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      Spot on Kath Noble:
      Austerity isn’t the same as tackling waste and corrupt governance that leads to bad policy making. Harsha Silva and the UNP opposition that fancies themselves economic gurus are VERY FUZZY thinkers.

      As you say: there is a difference between ensuring that expenditure is productive and targeting an overall reduction in expenditure.
      In the same way, there is a difference between targeting subsidies so that the right people benefit and reducing the level of subsidies”.

      The reason for the massive debt of the CEB which is being passed onto the consumer is partly caused by white elephant infrastructure projects in Hambantota:
      Debt like aid is fungible. At very least there needs to be an independent external review and evaluation of the first phase of the Hambantota port and its performance before embarking on the $ 800 billion second phase which should be downsized.
      the massive and wasteful white elephant infrastructure projects (maintaining and air conditioning for example the empty Mattala Rajapassa AIRPORT and SEA PORT, Military camps etc which should CLOSED DOWN to cut running costs), as a failed enterprise.
      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). Under-performing state enterprises are employment HUBs for unqualified Rajapassa political stooges – just as is the Divineguma enterprise and the Lanka Administrative Service today which is being stuffed in unemployable graduates so that Rajapassa may win Provincial ele
      The Rajapassa notion of development is very CRUDE and CHILDISH infrastructure – buildings and more buildings without any HUMAN RESOURCES or understanding about how to ensure skill development, R &D. Hence, all the qualified, skilled and intelligent folks are fleeing the Miracle of Asia 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 agricultural communities – and hence there will be no FDI in Hambantota.

    • 0
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      Good stuff Kath. We need to look at the ROOT CAUSE of the CEB crisis and get a break down of the CEB debt and its biggest debtors. Wonder how much of the CEB debt is a result of:
      1. under-performing state enterprises not paying their bills?
      2. Recurrent expenditure for new white elephant infrastructure projects including of various military business enterprises, as well as, Hambantota port and airport.
      3. Corruption and purchase of electricity from private electric suppliers at inflated prices?
      4. Subsidized electricity provided to politicians and parliamentarians (who pay Rs 2000 a month and their various ministry events..)
      5.6.7. Anyone who cares to add to this list – feel free..

  • 0
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    Thanks very much for this nice article. People of Sri Lanka shouldering the corruption of our rulers. The price hike will affect cost of living, bread earners have to starve their self to feed their kids and family in this economic climate

  • 0
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    Very analytical and useful

  • 0
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    The government has not succeeded in convincing most! When the electricity bills reach households beginning June, even the few who have been convinced, will become unconvinced.

    Dr.RN

  • 0
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    Well said. GOSL play night matches, Riding races in night. Ordinary poor person has to suffer for this.

  • 0
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    There is not much resistance to the increase either. The full impact of this increase will be felt by the end of the month when the electricity bills are delivered. Then too its only for one third of the month. Shocking in stages? The full impact only end of next month.

    The people seem to be tranquilised to the extent that govt can do anything and get away with it. The common people criticise the govt but are helpless. Mainly this is due to the weak opposition and the exeecutive presidiency. Govt controls the media which paints a rosy picture no matter what happens. People are so estranged and vulnerable.

  • 0
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    I do not agree with the statement of Kath Noble that high income earners pay relatively little for electricity. The comparison between the new electricity tariff in Sri Lanka and New Delhi is given below to show that PUCSL has produced a sensible tariff, under difficult circumstances. Their stern recommendations to CEB appear to be based on the views received from the stakeholders.

    Sri Lanka – new tariff in LKR 20.04.13

    0 – 30 5.00
    31 – 60 6.00
    61 – 90 8.50
    91 – 120 15.00
    121 – 180 20.00
    181 – 210 24.00
    211 – 300 26.00
    301 – 900 32.00
    900 -> 34.00

    New Electricity Tariff New Delhi at Exchange rate IRS = LKR 2.34

    Cost/unit – Rs. (LKR)

    0 – 200 8.66
    201 – 400 13.24
    401> 15.68

    http://zeenews.india.com/business/news/economy/electricity-to-cost-more-in-delhi-from-friday_69276.html

    • 0
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      Truth,

      Thanks for highlighting a very critical issue.

      Why should there be a difference between the so-called rich and the poor , when they purchase a commodity like electricity? If the rich consume more, they will pay more in terms of the quantum they consume. They now pay more in terms of both unit rates and quantum consumed. Do the rich pay more per unit of petrol? They may drive cars and pay more in terms of the quantum consumed. Those who cannot afford cars, ride motor cycles and pay for the lesser quantum they consume. Those who cannot afford motorcycles, ride bicycles and buses. These are all decisions dictated by the free market and personal economic fortunes. I do not understand the logic behind the rich-poor argument with relation to electricity rates.

      The so-called subsidy for the poor means they can use only a few bulbs for a few hours everyday. How does this improve their quality of life? In the modern word that is dependent on electricity, as a vital human necessity, the rich-poor arguments are puerile. Electricity should be affordable to all and permit every household to use the lights they require, a refrigerator, a washing machine, an iron, a water pump, some kitchen equipment, a TV and a few fans, at a cost that is commiserate with what even a poor family earns. Isn’t it an insult to tell the poor and the low middle class not to use these appliances? Are these luxuries in the modern day? If there are so many poor in the country who can afford to burn only a few bulbs for a few hours, whose fault is it? Many things were claimed to have been done in this country, in the name of the poor, over several decades. The per capita income in this country is being claimed to have increased! Have the poor and the middle class got poorer and the rich, richer? Whose fault is this?

      The government boasts of near total electrification of the country. What is the purpose of this electrification, if most people cannot afford to consume the power they require?

      I talk to many simple Simons in the course of a day and they are are very worried about the hike in electricity rates. They do not know how to reduce their electricity consumption any further and are worried how they will pay their bills. It is funny that the government is not sensitive to this reality.

      I have been taking a fasting blood sugar test every other day during the past week at a hospital nearby. I was charged Rs 265/= for a test previously. I was charged Rs 280/= today. The cost increase was due to the recently hiked electricity rates. Does this increase discriminate between the rich and the poor? How many other indirect increases are in store for us in the coming days?

      Dr. RN

  • 0
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    Public utilities like public hospitals will have state of the art high tech machinery and a very good level of healthcare with freely available pharmaceutical stocks as in many newly developed countries if those decision-makers who allocate funds for spending also use these utilities and not private or overseas facilities.

    Decision-makers must regain the touch they seem to have lost with the common people. If they remain remote and out of touch, they will never be able to improve the systems in Sri Lanka.

    Electricity prices could have been reduced if monies allocated to non-essential items like sports grounds, airports, sea ports etc had been allocated to infrastructure development of health, education and transport (not just roads) instead, where overall expenditures would still seem minute comparatively.

  • 0
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    The current parliamentarians have just short-circuited their comfortable lives. will hopefully see a new breed in the near future. how they will fare is an enigma!
    Hope at least they jump over the fences to the respective positions and places… at least the loin cloth will spare embaressment.

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