Charges traded, buck passed for scuttling Sri Lanka cheap power plants at COPE probe

ECONOMYNEXT – Sri Lanka’s power ministry, utility officials and politicians blamed each other and the regulator for chaotic procurements of the state-run utility, which usually come after politically driven cancellations or delays of large plants in a long term generation plan.

Sri Lanka is heading for power shortages in the first quarter of 2020 when droughts come and demand goes up, due to the cancellation of a coal power plant by President Maithripala Sirisena and delays in earlier plants, amid political interference and bureaucratic infighting.

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Sunil Handunetti, Chairman of the Committee on Public Enterprises of Sri Lanka’s parliament questioned why the power utility was active in purchasing emergency power but was unable to complete long term projects.

Power sector officials explained that large coal plant in Trincomallee (which been in planning stages for years) had been cancelled at the last minute, for which alternative plants were needed.

Handunetti asked how a 300MegaWatt diesel plant (which came place of earlier delays of cheaper plants) was also delayed.

CEB General Manager S D W Gunawardana said the utility had prepared documents on time, but approvals and procurement processes from the higher levels including cabinet appointed committee had taken time.

He pointed out that the CEB had nothing to do with procurement at all and it all happened outside the utility. The tender boards are appointed by the Treasury.

In technical evaluation committees, several CEB representatives are included in their expert capacity.

Handunetti expressed surprise that the CEB seemed unaware of exact recommendations of TECs.

There had been a tussle between two bidders, and the issue is now in court.

CEB procurement of many goods or services face long delays in a convoluted process, with tender boards coming under political pressure, losing bidders appealing under the utilities governing act and then going to court.

On the 300MW so-called dual fuel plants, politicians then suggested and unusual step of accepting two bids, with the most expensive one first and second supposedly cheaper one which was rejected over financing conditions.

The matter is now in court.

Handunetti questioned whether power plants cannot be scheduled in the long term generation plan two or three years earlier than now, given the evidence that long delays are inevitable.

There was no specific response to the question from the CEB.

There have however been attempts to increase the so-called ‘reserve margin’ of the utility above the level set by the regulator through cabinet, which is a roundabout way of getting around the problem.

Infighting

Power Ministry Secretary B M S Batagoda said the delays came from infighting between the CEB and the Public Utilities Commission which led to trade union action.

The CEB had protested the sudden scrapping of coal plants by the power regulator and its engineers union alleged manipulation of coal costs upwards and an alteration of its power generation plan, on a claim that there was a political decision against coal.

There were also concerns by others that recent falls in liquefied natural gas prices were not reflected in the power plan and that it was too focused on coal.

Sri Lanka has a power policy, which was specifically devised to stop ad hoc political decision making due to pressure from special interests. A revised policy was finally issued in 2019.

A power plan was also finally approved.

CEB has had sometimes also bought build-operate-own or build operate transfer plants at residual or lower than replacement costs at contract expiry without PUCSL sanction.

Observers however say that the CEB’s long term generation plan had been delayed by politicians, sometimes on the prodding of special interests in the past, long before the Public Utilities Commission was set up.

Plants have then been bought under the direction of special committees, special cabinet approval or as government-to-government deals.

Cheap coal or cheap large hydro plants to be build by the CEB usually fall victim to political, environmental or religious lobbies, while diesel generators built by private developers, as well as mini-hydro plants generally manage to overcome opposition.

The CEB is a state monopoly, and the miss-steps of the utility, the regulator or politicians are covered by tax-payers and the general public, unlike a private company whose shareholders take the hit.

The public either suffer blackouts or cover losses of the CEB through taxes paid on food and other items or more interest bearing debt debt.

In Sri Lanka, due to the monopoly in distribution, members of the community or corporations cannot themselves generate and sell power even to their neighbors or relatives.

The monopoly had been partly dented by the renewable industry pressure groups, through net metering and other methods backed escalating tariff for large households that made grid power artificially expensive. (Colombo/Oct08/2019 – Update III)