15 August, 2020

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Successive Governments Have Messed Up Electricity Policy & Pricing: Is The CEB An Awful Loss-Making Outfit?

By Kumar David

Prof. Kumar David

If with good agricultural productivity and efficiency in milling and transport, it costs Rs 95 to get a kilo of rice to market, and if government decrees that rice be sold at Rs 85 per kg and if annual consumption is ten million tonnes (10 billion kg), somebody somewhere has to bear a loss of Rs 100 billion. Not all the Task Forces in Gota’s world can change that and soon enough the President and his band of merry men will back down. They did. If the cost of electricity at the point of delivery employing the country’s plant efficiently is Rs 15 per unit (kWh) but government stipulates tariffs such that the average revenue at the point of delivery is Rs 5 per unit, and if annual  consumption is 10 terawatt-hours (10 billion units) then somebody, somewhere, in this best of all possible worlds, has to bear a loss of Rs 100 billion per annum. Once you get that you have grasped the key to why the CEB is making a loss.

I will flesh this out in three parts. What is the average efficient cost of generation and supply; what is the average tariff; why is the nation’s generation mix so screwed up? On the last matter let me, let you in straightaway on a non-secret. It is successive governments including corrupt and/or stupid national leaders (Presidents, PMs, Ministers and Ministry Secretaries, between the mid-1990s and 2019) who are to blame. 

The production cost of non-renewable-source electricity (about 75% in our case) changes with world coal and oil prices and therefore from year to year. But presumably what readers want is a guideline. The cost of coal power (900MW Puttalam power plant) varies between Rs 6.00 and Rs 7.50 and the average I use is Rs 7 per unit. Similarly, the range for oil power is Rs 16 to 20 and I usually use an average Rs 17.70 per kWh. These production prices are internationally normal. The CEB has still not built LNG generation but we can think of production cost of LNG generated electricity as 10% to 20% higher than coal, but you will hear no end of disputations from those with commercial axes to grind. It is not disputed that LNG power is cleaner. Hydro is nearly zero operating cost.

The CEB has a complicated tariff structure varying between domestic, industrial, general purpose (commercial, educational etc.) and religious tariffs. It also employs a maze of crazy slabs for the domestic sector and time-of-day charges, fixed charges and maximum demand charges for industries. So as not to drive readers nuts, I confine myself to samples as follows. A humble home using 60 kWh per month will pay Rs 5.85 per kWh while an upper-class household consuming 150 units a month will encounter an average tariff of Rs 35.20 per kWh. A huge cross subsidy is evident and no meaningful average can be concocted. A large 50 kVA industry supplied at high voltage will pay a fixed-cum-maximum demand charge of Rs 58,000 per month and per kWh tariffs of Rs 5.90, 10.25 or 23.50 depending on the time-of-day. Now take that ice-pack off your brow, the hard part is over. 

OK let me make it easier; the total CEB costs divided by the total amount of electricity sold will give us an idea of overall average cost per kWh. This works out at between Rs 17.2 and 18.2 per kWh (mean 17.7) in most years. Next, what is the revenue derived from the maze of tariffs? It’s about Rs 220 billion (The CEB website is woefully out of date and 2017, 2018 and 2019 Annual Reports won’t download so I am extrapolating from 2016). The energy sold is about 14.5 terawatt hours (14.5 billion units) so one can say that the typical price at which energy is sold is Rs15.2 per kWh (220/14.50). There lies the secret to the CEB’s losses – it sells at prices considerably below its perfectly reasonable costs of production. If you sell 14.5 terawatt hours at Rs 2.50 per kWh below cost of production you cannot but incur a loss of Rs 36 billion per annum (2.5×14.5 rounded off). When coal and oil prices rise (global fuel prices move in tandem) losses are higher.

These numbers relating to the operating account are approximate and change from year to year. Hence the CEB’s purported annual loss varies between Rs 10 and Rs 50 billion depending on fuel prices, rainfall fluctuation, and other factors such as movements on the capital account, and recently a 30% fall in industrial electricity demand during the worst of the COVID-19 disruption. 

So, someone else not the CEB is to blame for financial losses. Is the CEB a top-heavy corrupt entity that swallows resources at the apex? Not as far as I am aware and I know many senior chaps; some sat in my classes decades ago though I cannot guarantee for how long they kept awake. But seriously, though I have known a rotten egg or two in my 50-year association with the outfit, on the whole it is an elite engineering organisation which an earned reputation for competence. The CEB’s “Administration Costs”, in the parlance of the Annual Report, is Rs 4.5 billion per annum; reasonable for an organisation employing about 150 (?) professionals and thousands of technicians. Nevertheless, there are some harsh things I have to say about the CEB which I am reserving for the end.

Another way of judging productivity is cross-country comparison of production costs but I have access only to tariffs, not to internal data. As per what I find on the web (2011 was best as it shows 17 countries) average selling prices vary from LKR 15 per kWh in India and China to a high of LKR 65 in Germany and 76 in Denmark. Comparison is difficult; Northern Europe imposes huge surcharges so as the subsidise renewable wind-powered electricity. The point is that CEB average selling price of Rs 15.20 is acceptable and the corporation is a professional, reliable and to be best of my knowledge not an overly corrupt outfit. But still there are problems; where do they come from?

CEB typical Generation Mix (clockwise from noon): 45% Coal, 25% Hydro, 25% Oil, 5% Wind and Other
[Oil typically 10% CEB, and 15% Private Power]

I will not hesitate to say, and I speak from a certain amount of personal engagement, that the big bad wolf that has landed Lanka’s electricity sector in an outlandish mess is government. The fashion in left circles where I belong is the blame JR’s neoliberal 1977 Administration for everything. Sure, I love to do it as well, but a lingering spark of honesty forestalls me. Accelerated Mahaweli was a good project all round – in the power sector as well. Rot started with Chandrika’s mid-1990 Administration. Kick-backs were paid galore at high political levels, even a CEB GM took away a suitcase full according to a now deceased acquaintance of mine who handled the loot, and commercial agents were running amok like 40-thieves! It is the frank view of this commentator that bribery, mainly of state high ups, was commonplace in private gas-turbine, oil-fired, barge and diesel-engine projects. 

This was topped by monumental ignorance. I was on a Committee to report on the feasibility of the Sampur coal-fired project which was scuttled even before our report was written because crackpot Sirisena and a band of evangelical environmental dunces surrounding him decreed it be so. At the first meeting the Ministry Secretary informed the Committee that a decision had already been made and invited us “to report our findings”. What a crank! He climbed down when another member and I threatened to walk out because “then what’s the use of a committee?” One of our findings was that cancelling Sampur would land the country with a future additional burden of Rs 220 billion since expensive oil-powered generation would have to be used for over 5 years. And this has come to pass.

The “massive losses” of the CEB in the form of multi-billion-rupee debts to the Petroleum Corporation and banks – it would have been worse but for Covid-19 clipping demand – were foreseen and predicted by CEB engineers, consultants and this humble commentator. President, PM, Cabinet, Power Ministry and Public Utilities Commission (PUCSL) played with the nation’s Long-Term Generation Plan like monkeys; they cranked the Plan around like a veralu amme churning achcharu. In the last 12 to 18 months Cabinet decided, undecided, redecided umpteen times to okay LNG plants in collaboration with Japan and India. And now, hey presto a fourth 300MW coal-fired unit is to be added instead at Norochcholi! I had better stop, I am getting angry. 

But all is not blessed within the CEB and I wish to make three critical comments; the quality of the Norachcholi generators, the fly-ash disaster in the vicinity of that power station and the CEB-PUCSL relationship. A layman would be forgiven if he thought that one of the Norochcholi generators was picked up from a scrap heap and another was unimpressive as well; the third seems ok. Breakdowns at this plant are as common as a Covid-19 epidemic; 20 to 30 a year sometimes. Why did project engineers contract for them? Were those who visited China and those who finalised the contracts sleepwalking? Maybe they got them for free or at give way prices but never in my professional life have I heard of units that had to be shut down so frequently. 

Fly-ash is not the stuff that spews from the stack (chimney) but the millions of tons of ash from incinerated coal that collects at the bottom of the boilers. Every coal-fired station produces millions of tons but the ash is disposed of without becoming a public nuisance or health hazard; and Norochcholi is only modest sized in international comparison. The surrounding countryside to a radius of about 5 km is blanketed in ash, houses are covered like Christmas fluff, children breathe it all the time. The CEB Board and Management has been reprimanded and promises often extracted that measures to contain ash will be taken. Zilch has been done. Incompetence!

Finally, I must add that the relationship between CEB and PUCSL is cat and dog. The statutory power to approve the Long-Term Generation Plan resides with PUCSL which does not have the  planning tools or the computing power to make meaningful alterations. However, that does not stop it from amending the plan like one of those aforesaid monkeys. There has to be cross representation and more technically competent membership on PUCSL. This is a complaint as old as the PUCSL itself, but not to worry, nothing will change.

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Latest comments

  • 2
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    1here is something rotten about the CEB and the PUCSL How is it that they are unable to estimate the power demand growth and provide generation as needed. I am pretty sure there is no way renewables can provide the necessary capacity.

    It seems like Prof David is suggesting more coal. is Sampur? Sri Lanka has to be realistic. we cant afford all the cost of a more expensive generation. Could we locate these on an offshore platform? So that the ash does not make everyone sick.

    Good article Dr David

  • 2
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    Dr Kumar David,

    Your computation of Rs 100 billion loss may be on the lower side. Did you consider the huge subsidies in paddy production- subsidies on, fertilizer, insecticide, seed paddy and the guaranteed price schemes.

    The cost of irrigation department both capital and recurrent costs since the Irrigation department solely exist for paddy production. Then the agricultural extension services and input supplies.

    The entire government machinery was geared towards self-sufficiency and food security from the time of independence and come to the present impasse.

    Why not diversify and import cheaper rice from abroad and produce profitable commodities for local consumption and exports and escape from the dependency syndrome.

    Task forces are not the solution, but new agricultural policy overturning the past polices and replacing with modern innovative polices may be the way out.

  • 0
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    Sri Lanka needs to focus on maintaining the average cost of electricity at between US Cents 8 to 10/unit to be internationally competitive. The need for an additional 300 megawatt coal power plant is justifiable, if the objective is to produce 900 Mw of electricity/ day with one unit under planned maintenance, while maintaining the environmental standards specified for the plant.

    At a time when CEB engineers are protesting about the plan to allow the new 300 Mw plant to be operated by the plant contractor, the controversy needs to be resolved in favor of CEB, if the CEB Engineers undertake to operate the plant within the specified environmental standards, including the disposal of fly ash. If CEB Engineers cannot meet the required environmental standards, the operation of the plant should be handed over to the project contractor, to operate within the environmental standards.

    At a time when Sri Lanka is in a debt crisis, CEB should be compelled to buy the power at internationally competitive prices rather than invest in any more power generation ventures. The government should offer land from Mannar along the Palk Straight and Palk Bay, including the islands, to international investors to invest in Wind Power plants, with pricing based on the low prices prevailing in India.

  • 2
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    Kumar David,

    You have concluded your article with a pessimistic note
    “Not to worry, nothing will change”

    During Mahavali days we were told that with hydro-power we could meet all our needs and export to India as well. What went wrong?

    The traditional energy sources for generation of electricity in Sri Lanka are coal power, oil power, hydro-power and LNG.

    These are all expensive sources except hydro.

    Is it not possible to do away completely with Coal, oil and LNG and solely depend on Renewable sources,such as small hydro, modern biomass, wind, solar, geothermal, and bio-fuels with Public-private partnership.

    The government commenced to diversify with incentives from 2007 onward, but after so many years, only a very small percentage is met from renewable sources.

    Is it due to corruption or there are any valid causes for this failure?.

    Domestic households could be drawn into solar and wind power projects.

    I read recently somewhere that Africa will be able to meet all their energy requirements from solar and wind power within the next 20 years.

    Is it not a realistic strategy for Sri Lanka to go in a big way for renewable energy with Public –Private partnership with attractive incentives.

  • 0
    1

    Wind and solar is obviously the way forward. Not only is it cheaper than coal, Sri Lanka’s geography offsets two of it’s disadvantages in the west. Lack of sunlight and lack of wind.
    Nine of the 25 districts boarder the Indian Ocean providing enough velocity for wind farms. The lack of sunlight is obviously not a problem.

    • 0
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      wind and solar cheaper than coal ? in what world ?

  • 3
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    “Accelerated Mahaweli was a good project all round”. There was also a political project that went with it that did some good for certain people with sectarian ideas. I wonder if Prof David ever heard about it.
    Now that kickbacks are also mentioned, I cannot help remembering Gamini Dissanayake once more.
    Seriously, corruption in the CEB was scandalous. In Year 2000or so, an exceptionally honest CEB engineer who left for Canada told me that fingers in one hand were too many to count the number of honest senior professionals in the CEB.
    *
    Prof. David advocates coal and was on a Committee to report on the feasibility of the Sampur coal-fired project which was scuttled even before our report was written. He blames “crackpot Sirisena and a band of evangelical environmental dunces surrounding him” who decreed it be so.
    Blaming Sirisena helps because it makes one look justified by default.
    Noraicholai is an environmental tragedy. Massive public protest by groups such as “Green Trincomalee” transcending any political agenda played a major role in the decision to save Sampur, but only for the time being.
    Pushing for electricity at the expense of environment and livelihood of peasants in a fertile land and fishers who thrived in the waters nearby is cynicism, to put it mildly.

  • 0
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    President Gotabhaya’s plan is to increase the renewable energy contribution to 40% by 2030. With domestic users being charged Rs 45/unit + tax for the use of electricity over 180 units, practically all the users of electricity over 180 units have already installed solar power to cover the usage of electricity. Even for commercial users, at current costs it is attractive to invest in solar power. Furthermore, the solar panels reduce the transmission of heat from the roof to the interior, thereby reducing the cost of air conditioning. With the peak load being between 6.00 p.m. and 10.00 p.m. solar power has a limitation.

    Sri Lanka has the potential to produce up to 5,000 MWh of Wind Energy. If a sliding scale for buying power is introduced, with first 300 MWh of power at US$ 10/unit, I believe there will be investors to generate 300 megawatts within two years. With renewable energy prices dropping, the next tranche can be US$ 9/unit. Judging by the prices quoted in India, these rates are feasible.

    We need thermal energy to meet the peak load requirement when the hydro energy and the wind energy generation is minimal.

  • 2
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    It is not only the energy sector but every sector is politicised and messed up in the country.
    The most important thing is that politicians should stop lying to people that we will give you free fertiliser, free energy, thousand pound wage for plantation workers without any facts and evidences. So far, the people or politicians have any undestanding of the economic status of the country. Can our president or prime minister give any update of the financial and economic status of the country? Do they have any impact analysis of the Corona on our economy, employment? Do they have a plan to handle the second wave of Corona? All their focus is on Election, Two third majority, Changing Constitutuion to hand over the power to Mahinda Family. Archeology became first priority at the expense of Corona second wave.

  • 1
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    I am happy to read an article of Prof. Kum close to his discipline of learning and presumably expertise and as well as teaching. The matters he raised are fundamental and the just carry on attitude of the authorities, especially at the higher management levels reveal to the trained eye that it is not simply callousness but to be a part of web of corruption. Prof Kum, as a professional should feel sad that the profession has been prostituted for gains amounting to millions. This malaise is not limited to the service of providing electrical energy but across the length and breadth of the country in many spheres. The challenge that Prof. Kum and his colleagues would be to steer the sector into providing electrical energy at a lesser cost under this environment.

  • 0
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    For once Prof AKD has written a very commendable article in an area of his competence. When he ventured into Epidemiology and commented on CV19 he was a disaster not understanding the fundamentals on how the virus can be contained! Indeed the CEB in spite of its minor shortcomings such as shortcomings at the Norochcholai coal plant is operating at a high level of efficiency. Power system losses and collections are the main yardsticks of a power utility efficiency. CEB records 8.4% for the former and 99.5% for the latter -which is equal to the best in developed countries! The high cost of generation is caused by the excessive use of private oil fired plants forced on CEB due to successive governments failure to implement coal and LNG power plants proposed by CEB. Kumar mentions that the cancelling of the Sampur project arranged with Indians in 2015 has “landed the country with a burden of Rs 220 billion” is a damning indictment on the Yahapalana govt in which he was a prime sponsor. It dwarfs the loss of the Bond Scam!

  • 0
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    Dear Prof Kumar David,

    As an academia, and with many of my first degree match-mates holding high positions in the CEB, and many greats like Prof KKYW, Prof Sam K, Prof Rohan L being my educators, I thought it is my duty to respond to your paper.
    Your presentation is excellent, well researched, and addresses all areas of the subject in concern, thus I’ve no new content to contribute. However I can comment on the plight of the senior managers/ engineers of the CEB since I associate with many of them informally.
    My personal opinion based on my interactions with friends and my interactions with the CEB are:

    1. The CEB is politically influenced inside-out, thus all strategic decisions are made by politicians or politically aligned bureaucrats and NOT by engineers. The main reason is that such key decisions have heavy financial implications, thus attracting the attention of all and sundry.

    2. Even those technically competent managers/ engineers of the CEB are being lured into agreeing to decisions that are against their professional conscience by way of offering material benefits.

    3. As rightly highlighted by you, the CEB and the PUCSL are at loggerheads and do not seem to agree on a way-forward strategy for the power sector in Sri Lanka, with the final outcome being we as a country just fire-fighting the problem with no proper antidotes to the pain.

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