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Friday May 7th, 2021

Power crisis has readied Sri Lanka for costly emergency; unsolicited plants, mafias win, say CEB Engineers

ECONOMYNEXT – Sri Lanka’s power crisis with daily blackouts has been brought to a stage where the public no longer cares at what price emergency power is purchased and larger plants can also be squeezed in without competitive bidding outside a long term plan, engineers at the state electricity utility said.

Engineers at the state-run Ceylon Electricity Board say the crisis did not just happen, but that it was deliberately instigated to bring to this stage as it had happened several times in the past.

"We have been warning that this will happen for three years," Saumya Manawadu, President of the Ceylon Electricity Board Engineers Union told reporters, after showing newspaper clipping and videos dating back over three years ago.

"It was like playing violins to deaf elephants (Beeri alinta veenar warderneryer kerrenerwar vargay).We are sorry that we had to be a party to the crisis.

"It is true that a drought and a breakdown in the Norochcholai plant contributed to the current power shortages. But the CEB cannot cut power whenever there is a drought or a plant breaks down.

"We have a 20 year rolling plan which is updated every two years which has provision for such events. But it was sabotaged."

In Sri Lanka, the various special interests and lobby groups who are trying to bring plants outside the least cost plan are generally referred to as ‘mafias’.

Planned Plants

Unlike private firms, which seem to overcome environmental and other opposition very easily to build more expensive plants, the CEB finds it extremely difficult to battle opposition to cheap plants whether it is coal or large hydro from environmental, political, and religious lobbies.

Hydro plants have been held up for years for anything ranging from a fish to houses.

As a result, CEB’s Least Cost Long Term Generation Plan is almost never implemented on time.

The Chinese coal plants came after a cleaner Japan-financed plant was halted when Prime Minister Ranil Wickremesinghe was in power in the 2001-2004 period, triggering a crisis later.

Most of the Mahaweli plants were also outside the plan.

The IPPs in the 1990s came after the first coal plants which were proposed after Mahaweli generators were blocked by environmentalists. CEB’s long term plan proposed the coal plant in the late 1980s.

The roots of the current crisis lay in the delay of a 500MegaWatt coal plant to be built in Sampur, Trincomalee for which the groundwork took almost a decade. (Sri Lanka consumers warned on impending ‘electric shock’ after coal plant scrapping).

The plant was also delayed while CEB engineers haggled with its Indian partner to reduce the price (heat rate) of the power and persuade the joint venture to go for an international tendering to get the best and cleanest technology.

But the government changed in 2015 and liquefied natural gas (LNG) was given priority through the backdoor without transparent revision of the national policy.

With the delay of the coal plant, which was originally expected in 2017, a 300MW combined cycle plant was expected to fill the gap. (Sri Lanka to call bids for 300MW diesel/LNG power plant to avert crisis)

The Engineers Union says it gave the 2015-2034 long term plan to the Public Utilities Commission of Sri Lanka, the sector regulator in mid-2015 but it was not approved. In the meantime, activists renewed opposition to coal and global LNG prices also fell.

The coal plant was then cancelled ostensibly by President Maithripala Sirisena. Union members claim a vociferous activist was behind the move.

The PUCSL approved a stop-gap plan around August 2016 with more LNG plants. (Sri Lanka regulator approves stop gap power plants to avert crisis: LNG in)

"We were given a letter to build plans for three years," Manawadu says. "There is no legal provision to approve a three year plan."

Coal plants were contentiously cut from the plan, apparently after President Maithripala Sirisena and a controversial economic committee set up by Prime Minister Ranil Wickremesinghe had vetoed coal.

Tilak Siyambalapitiya, an industry analyst and former planner called it Ball Games with Power Plants: Season 4 in 2016.

"This Committee has certainly commenced its ball games with power plants, issues orders to Ministry of Power and Renewable Energy, ridicules engineers and economists, says their calculations are wrong, and keeps throwing the planning reports into the dustbin until the type of power plant it wants, their friends want, comes their way," he said writing to Sri Lanka’s The Island newspaper.

"If it does not, then it will run away by 2020, after trying for five years. The result of these power plant ball games will be the same as before, and the sure loser will be you, the electricity customer.

"Make no mistake, blackouts in 2018 are almost certain. Look at your electricity bill today, and keep it. Then look at your electricity bill in 2020. And if you care to keep this article together with your electricity bill, you will also know who was responsible for higher prices and blackouts."

This year the CEB is expected to lose 89 billion rupees which will be funded by taxes on other goods (Sri Lanka’s CEB needs Rs40bn bailout amid Rs89bn projected loss: Minister).

CEB engineers say the regulator exceeded its powers. Energy analysts had also said the all-LNG move violated national policy by undermining energy security and diversity though gas was clearly cleaner.

Policy guideline 12 says: “The electricity sector shall rapidly move from the present (hydropower and oil) status to a multiple-resource status. To ensure maximum possible security against price and supply fluctuations, and to ensure the growing demand is reliably met, this third fuel shall be coal.

Meanwhile, 500MW LNG plants instigated at political level were also approved.

CEB engineers say the regulator approved the plants though the grid cannot accommodate a 500MW plant as it is too small, and its outage will de-stabilize it.

The stop-gap 300MW plant acquisition was also delayed. The engineers union also refrained from participating in procurement pending the approval of its power plan.

Twisting Tender Bender

The tender when eventually floated in 2016 was mired in corruption allegations.

Engineers say the technical evaluation committee ruled that more than half a dozen respondents were substantially responsive but a cabinet appointed standing tender committee decided to open only one, generating outrage within the sector.

But that bid could not be opened due to technical defects, which some say was sabotage. Following protests, all TEC-approved bids were opened. (Cabinet advice sought on stalled Sri Lanka 300MW IPP tender: minister)

Manawadu says the sole bidder selected to be opened by the tender board turned out to be the most expensive of the lot.

Amid controversy and corruption allegations, some tender committee members resigned.

Eventually a different bidder, a consortium called Windforce and RenewGen was selected. LTL, a private group in which CEB has a stake, insisted it was the cheapest.

A procurement appeal board upheld the decision.

Ministry officials said the LTL did not take into account taxes and a government guarantee was also asked, which was a no-no.

LTL has a controversial record on a 300MW plant which was built without a guaranteed heat rate, but its other smaller plants were competitive.

A third party then went to court. Later, LTL itself went to court. The government has now said that both bidders will now be given tenders with LTL is expected to fill the gap coming from the cancelled coal plan.

Early Alternatives Rejected

CEB engineers says early attempts to either renew expiring diesel and fuel oil plants or purchase them outright were also vetoed by both politicians and the PUCSL.  (Sri Lanka power utility plans to re-connect over 200MW of expired IPPs)

The CEB has a rocky relationship and a highly unusual personality clash with the sector regulator.

But the CEB did buy a barge, Colombo Power on which the contract expired, which the PUCSL says is illegal and is only allowing hydro cost in tariff determinations. The plant’s power purchase agreement had a clause (BOT) to transfer it to the CEB.

CEB also later renewed the PPP of a 100MW plant ACE Embilipitiya, with cabinet approval, which was also ruled illegal. In 2018, the Engineers Union resorted to union action to force the regulator to approve the CEB’s generation plan, saying it had arbitrarily altered its power plan and threatened to shut down the ‘illegal’ plants which would have led to power cuts (Sri Lanka power engineers warn of blackout from June).

The regulator insists that old plants should also be taken through tender. Since the costs are known, it is possible to re-negotiate prices, CEB engineers argue. The regulator meanwhile also asked for new plants to be connected fast. (Sri Lanka should buy 150MW contingency, 60MW emergency power: regulator)

CEB engineers says if plants are renewed or purchased outright, early, before a crisis comes, contracts can be done at a cheaper cost than when done later in the middle of a crisis when the private party knows the utility is desperate.

Old plants also need refurbishment which require capital and may not be as efficient as they started out requiring more maintenance, though the ‘fair’ capacity charge is difficult for an outsider determine.

Asia Power, a 50MW expired plant is now expected to be renewed at a capacity charge of 2.66 per unit and ACE Matara a 20MW plant at 2.96 rupees a unit.

Champika Ranawaka, who was energy minister for a short time also announced that all private plants would be terminated, union officials say.

Two plants were eventually dismantled and taken away.

Ministry Involvement

Unlike a private company, the CEB cannot tender on its own. It is dependent on the approval of the ministry to float tenders and also tender committees, who micro-manage procurement.

Most unsolicited proposals come to ministry officials and the CEB is the last to see it, though ‘feelers’ are sent from time to time according to utility officials.

Activists who advocate privatization say politicians, ministry officials, and some CEB officials acquire expensive plants because tax payer money is used and there is a agency – principal problem, which is a reason state-owned enterprises run losses or fail.

The tax payer whose money is used to build or bail them out has no say and politicians who are in effective control and appoint boards of directors, are only interested in deals to ‘milk’ SOEs unlike true shareholders who get dividends from profits and risk their own capital.

In South Asia, Mumbai is the only city that does not suffer power cuts because Prime Minister Nehru did not nationalize Tata Power in the city which has a history of over 100 years in power generation and supply. Even when the larger Maharashtra grid fails, the Tata grid isolates itself and supplies power.

Private firms operate in several Indian cities now and they have also expanded abroad. Due to uninterrupted private power supply, analysts say Mumbai effectively became the commercial capital after independence.

Union officials say seven months ago, the CEB prepared tender documents for four 24 MW thermal plants and gave them to the ministry but mysteriously, it was not tendered.

This year, 100 MW of emergency plants were eventually tendered. But they were also not connected in March as expected.

"Now that there is a crisis and there are power cuts, the public no longer cares at what price the emergency power is purchased," says Athula Wanniaracchi, past president of the CEBEU.

"This is was the objective of the people who scuttled the cheaper plants. Now all kinds of plants can be brought."

There are two tricks in bringing expensive large plants, which are not in the generation plan.

One is emergency plants, which usually tend to be short term.

The second is to bring larger longer term plants saying that they are government-to-government, even if state owned companies are not involved as there is a loophole in the law allowing such action. (Colombo/Apr04/2019 – Update III-SB)


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