Colombo Telegraph

The Glaring Missing Element In The Electricity Tariff Hike

By Chandre Dharmawardana

Chandre Dharmawardana

While most commentators howled in opposition to the Electricity tariff hike , I have argued (e.g., 7th May, Island newspaper) that this would jolt the nation into a more salutary developmental trajectory. The first stages of development relate to basic agricultural capabilities needed to feed the people.  The vision of successive governments before and after independence had been fired by the ancient hydraulic civilization of Sri Lanka. This led to the Galoya, Walawe, Mahaweli and other schemes that created the nation’s foundation for agriculture as well as hydro-electricity.

As the agricultural needs become established, the key components needed are (a) roads, communication and industrial infra-structure that feeds on  (b) the availability of power and fuel. As a nation develops, people move from simple fuels (used for heating and cooking) to more sophisticated power capable of doing high-end,  `intelligent’ tasks needed in manufacturing and data processing. Politicians, mired in their power struggles, constitutional haggling,  and day-to-day wheeler-dealing are not known to take technology seriously except in war or in rare circumstances. However,  history is driven by technological circumstances.

The circumstances haunting in Sri Lanka today in the power sector are clear. Chronic power shortages due to increasing demands, increasing incapacitation of hydro-power due to global worming, rising costs of imported fossil fuels,  difficulties in implementing nuclear alternatives all converge to create a catastrophic power shortage. The current power hike may have been precipitated due to past mismanagement and corruption but it is inevitable, and would have happened at some point in time, within standard policy implementation even if they were managed without corruption.

Sri Lankans consume about 40 units (kWh) per head per month, given the annual consumption of about 9 billion units by the whole country. This number, obtained by simple division is misleading. In reality, some 10-15% of the 9 billion are due to losses, and a good fraction of the power is used by non-household users. Hence the majority of house-hold users consume even less than the 40 units per head per month (obtained by simple division). The cost for the first 60 units per month per head remains at Rs 10 in Sri Lanka even after the power hike. This  tariff may be  compared to, say, Rs 15 per unit in the USA (national average of 11-12 US cents per unit), and Rs  35 per unit in rural Ireland. So this is hardly a `tariff hike’.

Generally speaking, tariffs are simply inflicted upon consumers and their value is determined by how much the consumer is willing to “take”. There is no fundamental theory of `tariffs’, although economists have written massive tomes of seemingly erudite theories which are mostly irrelevant. The actual market value (tariff)  is manipulated by advertising, by playing with  supply and demand etc. in capitalist systems. The power industry in Sri Lanka is mainly a public utility (Ceylon Electricity Board) subject to political exigencies, together  with some admixture of private power companies. Contrary to political propagandists, the tariffs in Sri Lanka (about Rs 10 per unit at the low usage end) are no different to those prevailing in other parts of the world (as discussed below).

The new tariff structure introduced by the CEB forces the large-volume users in Sri Lanka to pay more. The usual practice is to give lower tariffs to high-volume users to `encourage’ industries. This is in fact a hidden subsidy (or a hidden tax concession) to private corporate interests in the context of a country where the power utility is in the hands of the government. Hence, when the tariff structure was changed to increase the cost to high volume users, I hailed this as a correct step forward. It is a step that would encourage the industrialists as well as the government  to look for alternative energy sources. This is of course not rational planning to create a problem and then solve it. But this is the typical stochastic (cart-before-the-horse) approach used by politicians all over the world!

We need to tie a new horse to the cart to provide new traction.

I have suggested in many interventions that Sri Lanka should embrace solar energy in a big way to face the future, while also encouraging Dendro and other alternative energies. Let the government purchase, say, seven million square meters of solar panels from several sources (e.g., China, India, Japan, Germany, Korea) with each solar panel having an efficiency of 10%; and install them on the roofs of government buildings and public places like sports stadiums, schools, bus depots etc. Such installations would produce at least about one billion units of electricity if we use the (fixed-plate) average rating of 5 kWh of solar energy per day per square meter (data from US satellite studies, National Renewable Energy Laboratory, Colorado). Given high-volume orders for solar panels, manufacturers will drop their prices, and their governments (struggling with their domestic economic down turns) will  provide low-interest loans for the purchase of their products.

Even at the current market cost of about Rs 20-30 per kWh for solar panels in India, the total cost is in fact quite small compared to the cost of setting up a 1 billion-unit hydro-power station that involves the construction of reservoirs, dams, and power grids.  However, Sri Lanka has invested enough in hydro-power, and it needs to diversify, recognizing the onset of global warming that is going to happen in the next few decades. Here we note that the implementation of the Kyoto agreement on climate change has been abandoned,  due to the economic collapse of the West arising from its expensive wars,  corruption and racketeering by governments  closely linked to western oil and mineral conglomerates.

The consequent boom in the solar-energy sector in Sri Lanka would produce many new jobs (multiplier effect), and  encourage the industrial sector to install solar panels on the roofs of their buildings as well. Banks will give consumer loans to profit from the new business. So, the missing element in the electricity tariff increase is the need for concurrent action where a viable alternative energy source is boosted to a practical reality by pro-active government action.  This will in the end save the nation from its increasing enslavement to imported oil.

[My article entitled “The Electricity Tariff Hike – A great salutary step forward“, Colombo Telegraph, 6 th May,  stated that the current usage pattern is 0.3-0.4 kWh per household’. This should be understood  to read “roughly 0.3-0.4 x1000 kWh per person per annum”.]

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