Ceylon Electricity Board forced to idle cheaper plants as financial crisis worsens

ECONOMYNEXT – A deepening financial crisis at Sri Lanka’s state-run Ceylon Electricity Board is forcing the utility turn on more expensive plants while cheaper plants which do not have cash to buy fuel is idle, informed sources said.

Under standard operating rules the CEB run thermal plants on a ‘merit order’ starting the cheapest plants first and the most expensive plants last, to supplement coal which is the main source of base load.

In general gas turbines are run last.

The operating costs of a plant is based on the type of fuel (coal is cheapest) the type of plant, and in the case of a private plant the level of competition at the time it was acquired which will determine the price.

Some Independent Power Producers are cheaper than others partly because they are more efficient or they had bid lower at procurement due to competition and are offsetting energy costs with part of their capacity charge.

The CEB has now exceeded the 80 billion rupee credit limit given by the Ceylon Petroleum Corporation.

Power Minister Mahinda Amaraweera has said the CEB is in a deep financial crisis (dhadi moolya arbudayaka).

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Due to delays in paying IPPs many of them have also run up their credit limits and bank facilities.

As a result the CEB is forced to operate plants where there is fuel available, outside the merit order, even if that plant is not the next cheapest plant, source familiar with the matter said.

Sri Lanka’s The Island newspaper quoted Minister Amaraweera as saying that he will try get cabinet approval to raise the credit limit from CPC to 90 billion rupees.

If the high borrowings by the CEB and CPC borrow more, pushing up credit demand and the central bank injects liquidity to keep rates down there will be pressure on the rupee.

The CEB is in a crisis due to the cancellation of a coal plant and the depreciation of the rupee, and the failure of the regulator to raise prices.

Analysts have called for a reform of the central bank operations to block liquidity injections, which generates currency depreciation. (Colombo/Jan17/2020)

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