By Rajan Philips –
The shocks emanating from the recent electricity rates hike have exposed not only the state of affairs in what was once a jewel among the island’s public sector institutions but also the pathetic failure of the State to deal with what by all accounts is a national crisis. In fairness, the CEB’s financial and supply side crises are not a creation of this government. But after more than seven years of absolute power the government should at least show some understanding of the problem even if it is not able to offer a credible solution either in the short term or in the long term. Alas, there is no evidence of that understanding.
What is evident is almost lifeless insensitivity to the impact of the rate increases on millions of households. The indifference to the broader impact on the economy affecting production and export competitiveness might be shocking but not surprising. The Public Utilities Commission would seem to be trying hard to pull the plug on CEB’s finances after letting it have its tariff increases. The public spat over internal auditing at CEB is a red herring given the more fundamental questions at stake.
At his breakfast briefing to media heads, the President has reportedly described the increase in electricity rates as “a temporary measure taken to recover the losses incurred” by the CEB. He has also indicated that when the second and third phases of the Norochcholai coal power plant are completed by December this year, it would “be possible for the government to systematically remove the fuel adjustment charges added to the rate increase.”
Expert opinion and informed understanding present a different picture. The CEB’s financial problems are structural and its losses cannot be reversed by temporary measures. Fuel surcharges, as has been forcefully reminded by Dr. Tilak Siyambalapitiya, were introduced intermittently in the 1970s and 1980s and have now become a permanent factor in pricing so much so that it would be misleading to describe them as a “temporary measure.”
As for Norochcholai, it is proving to be another Chinese infrastructure albatross around the government’s neck with operational and maintenance headaches from the time it was switched on. It is far from being the intended cost-reducing boon to national power supply. A former Vice Chairman of the CEB, Eng. WDAS Wijayapala, has pointed out that accelerating the plant’s Phase 1 completion was part of the reason for its current problems, and has pertinently questioned the wisdom of accelerating the remaining Phases 2 & 3.
Patali vs Pavithra
Incredibly, a special cabinet meeting on the matter requested by Vasudeva Nanayakkara was not granted by the President. For the second time in as many months the cabinet has not been allowed to discuss matters of vital importance brought up by individual ministers. Before Nanayakkara, the presidential rebuff landed on Justice Minister Rauf Hakeem who had pleaded in vain for a special cabinet meeting after the ethno-religious attack on the Fashion Bug business in Pepiliyana. Nonetheless, the two ministers – though over 20 years apart in age – have become equally adept at ministerial survival notwithstanding the professed principles of the former and the agonizing moral dilemmas of the latter. Neither seems to be taken seriously by the President although the real reason for avoiding a cabinet meeting on the CEB crisis would have been to prevent a nasty clash between the former and the present holders of the Power and Energy Ministry.
The newly minted Minister of Power and Energy, Pavithradevi Wanniarachchi, after going incommunicado for days reappeared in parliament to sing her own song and disown the tariff hike proposal. She pleaded that the tariff hike is her predecessor Patali Champika Ranawaka’s baby and she is carrying it as a result of the recent cabinet reshuffle. Never mind Keuneman’s old wisecrack that there is no point reshuffling a pack that has no aces but only jokers, but we know that the good Minister was carried upstairs in the reshuffle as a payoff for her loyal gender support in the fraudulent impeachment of CJ Shirani Bandaranyake. The fair Minister may, in all fairness, be over her head in matters electrical but having accepted a difficult portfolio she cannot now complain that she did not know that her job description included taking responsibility for CEB’s tariff proposals to the PUC.
Champika Ranawaka, the former Minister, is not one who needs a special invitation to get into a political fight. Deprived of a cabinet clash, Mr. Ranawaka is reported to have gone ‘parliamentary’ distributing a letter to members of parliament contradicting Minister Wanniarachchi’s version and insisting that he has consistently opposed the idea of electricity price hike which according to the former minister is the brain child of the much maligned Finance Secretary. Mr. Ranawaka reiterated his belief in a progressive tariff system – those who consume less should pay less. And, wearing his engineering hat, he also expressed his puzzlement at the timing of the price hike – when the reservoirs are full and hydro-power can be generated to full capacity reducing the dependence on the oil-expensive thermal power.
Mr. Ranawake is an interesting political phenomenon. Young, trained in Electrical Engineering, and possessing plenty of political smarts and communication skills, he could have done much inclusive political good to himself and the country. Unfortunately and like quite a few others of his generation, during the tumultuous second coming of the JVP in the late 1980s, he first went sideways with the JVP’s anti-Indianism and then fell backward through the ethno-religious civilizational ring of exclusionary politics before finding his feet in the fundamentalist quagmire of the JHU.
Although as Minister of Power and Energy Mr. Ranawaka knew his electrical onions very well, he let his rhetoric surpass his achievements in an obviously difficult portfolio. At a Vienna conference in 2010, he laid out his vision for the CEB – to contribute to national development without being an economic burden by eliminating waste, increasing efficiency, reducing generation costs, and bringing in additional revenues. Mission accomplished is the message in his impressive website after the cabinet reshuffle: “After spectacular performance as Minister of Power and Energy, having curbed corruption and curtailed mismanagement at the CEB and related institutions, Minister Patali Chamika Ranawaka (has) assumed duties as Minister of Technology Research and Atomic Energy on January 31.” Even more over the top is this grandiloquent claim made on June 11, 2011 and quoted in a March 2013 internet news report: “It is with great pleasure I say that there is no financial crisis in the CEB. The power plants that will be constructed according to our plans will ensure that the people in this country can live without darkness until 2020.”
Whichever way the Patali-Pavithra battle – and it would be a totally unequal match-up – unfolds is not going to make a difference to the hapless public who are stuck with the hiked prices for the foreseeable future. But the battle should shed at least some light, given Mr. Ranawaka’s technical background, along with the usual heat of infighting, in regard to a complex portfolio of which the present government has no clue as to where to start, let alone how to end.
The anatomy of the crisis
In sharp contrast the government’s cluelessness there have been plenty of expert contributions in the media providing a good understanding of the problem and its solution. I have already referred to two such contributors, but without understanding and decision making at the cabinet level nothing is going to change. It is fair to summarize power generation and pricing as two sides of the CEB’s same crisis coin. While the costs of transmission and distribution (the so called ‘wires and supply’ costs) are somewhat controllable, it is the cost of generation that is impossible to wrestle down to keep the total cost below the approved unit price of electricity. The cost-price shortfall multiplied across millions of consumers and accumulated year after year is the fundamental reason for the CEB’s financial crisis. And there is no short-term fix to it.
The crisis is complicated by different sources of electricity and their respective generation costs. From what used to be 100% dependence on hydro-power in the 1970s the generation composition has been drastically transformed. The population and the universe of consumers have also doubled over the last forty years. The proportion of hydro power has shrunk to be under 50% and thermal power generation now accounts for more than 50%. And the rub is in the high proportion of oil-based power generation and the high costs that go with it. The oil-based power generation is required even more in drought years when the hydro-power contribution could fall considerably well below the installed capacity. Drought and hot weather also push up the demand for electricity by the increased use of fans and air conditioners. 2011 was a drought year when the hydro-power contribution fell to nearly 50% of installed capacity and drove the dependence on oil even higher.
The alternative to relying on oil is the development of cheaper coal-based thermal power plants, Norochcholai Phase 1 being the first such plant. The expectations are that the completion of Norochcholai Phases 2 & 3 and the completion of another coal-based thermal power-plant in Sampur, will diversify electricity generation to roughly about a third each of hydro, oil-based, and coal-based plants. These changes should reduce the high dependence on oil and associated costs and help achieve some balance between the unit cost and price of electricity. At the same time, there should not be any illusion that oil-based plants could totally be eliminated. All three traditional sources of energy along with renewable sources will be necessary to achieve a sustainable energy supply.
A commonly cited reason for the current crisis is the delay in the implementation of projects in a timely manner. Project planning can now benefit from available rainfall data for over hundred years and oil price trends over forty years and provide for anticipating and dealing with drought years as well as oil price fluctuations. But measures identified to deal with contingencies should be implemented according to target dates established in long term planning.
The Norochcholai project was delayed because of public protests on account of concerns over social and natural environmental impacts. However, such delays could be avoided by identifying adverse impacts and addressing them forthrightly and transparently to the satisfaction of the local communities where projects are located. The question now is whether the Norochcholai Phses 1 & 2 will be completed in 2014 and whether the Sampur power plant will be completed in 2017 as planned. Otherwise, industry experts are predicting a major crisis in the generation and pricing of electricity. While Norochcholai was gifted to the Chinese, the Sampur plant is being kept open for the Indians. But experts are warning that Sampur cannot be kept indefinitely waiting until India is satisfied with the terms of the undertaking.
The pricing side of the crisis calls for a systematic, consistent and transparent approach instead of ad hoc tariff hikes. Users will ultimately have to pay but there should be equity, fairness and affordability in the prices set for different categories of users. There should not be ‘tariff holidays’ for anyone except, if at all, those at the very bottom of the economic pyramid and charity organizations. However, under a provision of the Electricity Act, fourteen private companies have been exempted from electricity-user charges by extraordinary gazette notification. Among them are a garment manufacturer, cement and sugar factories, an Agency House, one hotel and a number of property developers. Why this special treatment to select businesses who can easily afford to pay when poor households are called upon to pay at an unfair rate?