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Tuesday November 29th, 2022

Sri Lanka power regulator fires salvo against fossil plants by adding up eco-costs

ECONOMYNEXT – Sri Lanka’s power regulator has released a study of ‘externalities’, where an attempt has been made to give a cash value to the pollution caused by thermal power plants such as coal, which will tend to push up costs.

Sri Lanka plans new power plants based on ‘least costs’ which tends to give a higher weighting to coal and now liquefied natural gas plants, and mature technologies such as large hydros where available.

Wind power prices have also fallen since competitive bidding was brought in and the technology also matured elsewhere. By adding externalities, higher cost renewable energy plants look better.

The Public Utilities Commission of Sri Lanka said the study was done by Sri Lanka Energy Managers Association.

The externalities study added 10.23 rupees to the cost of unit generated by a coal plant in Sri Lanka (Lakdanavi), 4.53 rupees to a heavy fuel oil combined cycle run LTL Holdings, 7.55 rupees to a diesel plant in CEB’s Kelanitissa complex, and a 4.55 rupees to a heavy fuel plant in Sapugaskanda.

“Power generation gives rise to a range of environmental issues including air pollution, water pollution, releasing toxic materials and GHG emissions during their operational life,” the PUCSL said.

“These environmental issues lead to adverse community, social and ecological related costs referred to as externalities.

“The right costs will help Sri Lanka to discover the real economic impact from power generation and also will help in preparing power generation plans for the country in the future.”

The ‘internalizing’ of ‘externalities’ however has also drawn controversy as a tactic used by the green lobby to tilt the playing field in their favour.

In Sri Lanka heavy fuels (furnace oil) are artificially priced up by the Ceylon Electricity Board which distorts the ‘merit order’ on which plants are operated (dispatched).

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

The government also charges taxes from coal and diesel from time to time, while renewable energy is given tax free status, which tends to further cloud the issue.

Many high costs plants including liquid fuel plans are also not in original generation plans of the Ceylon Electricity Board but are pushed in at the last minute after coal plants are scuttled by various interest groups.

Sri Lanka built a Chinese designed coal plant amid a crisis after a Japanese plant which was specified in a CEB plan was scuttled.

Renewable plants also have their costs. Some small hydro plants are located in montane forests. Some of Sri Lanka’s wet zone forests have point endemism.

Wind farms can disrupt bird flight paths, floating solar can cut off light and destroy under water plants which in turn hurts fish, while land solar farms spread over large distances can destroy the country’s remaining forests and brush land.

Many large hydro projects proposed by the CEB which are cheap, in the past have been opposed by environmental grousp. CEB also had trouble building a wind farm, after costs fell.

“PUCSL plans to extend the study to discover the external costs of power generation from other sources like hydro, wind, solar and natural gas as the second phase,” the regulator said.

The PUCSL is calling for public consultations on externalities.

PUCSL Public Notice


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A new Sri Lanka monetary law may have prevented 2019 tax cuts?

ECONOMYNEXT – A new monetary law planned in 2019, if it had been enacted may have prevented the steep tax cuts made in that year which was followed by unprecedented money printing, ex-Central Bank Governor Indrajit Coomaraswamy said.

The bill for the central bank law was ready in 2019 but the then administration ran out of parliamentary time to enact it, he said.

Economists backing the new administration slashed taxes in December 2019 and placed price controls on Treasuries auctions bought new and maturing securities, claiming that there was a ‘persistent output gap’.

Coomaraswamy said he keeps wondering whether “someone sitting in the Treasury would have implemented those tax cuts” if the law had been enacted.

“We would never know,” he told an investor forum organized by CT CLSA Securities, a Colombo-based brokerage.

The new law however will sill allow open market operations under a highly discretionary ‘flexible’ inflation targeting regime.

A reserve collecting central bank which injects money to push down interest rates as domestic credit recovers triggers forex shortages.

The currency is then depreciated to cover the policy error through what is known as a ‘flexible exchange rate’ which is neither a clean float nor a hard peg.

From 2015 to 2019 two currency crises were triggered mainly through open market operations amid public opposition to direct purchases of Treasury bills, analysts have shown.

Sri Lanka’s central bank generally triggers currency crises in the second or third year of the credit cycle by purchasing maturing bills from existing holders (monetizing the gross financing requirement) as private loan demand pick up and not necessarily to monetize current year deficits, critics have pointed out.

Past deficits can be monetized as long as open market operations are permitted through outright purchases of bill in the hands of banks and other holders.

In Latin America central banks trigger currency crises mainly by their failure to roll-over sterilization securities. (Colombo/Nov29/2022)

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Sri Lanka cabinet clears CEB re-structure proposal: Minister

ECONOMYNEXT – Sri Lanka’s cabinet has cleared proposals by a committee to re-structure state-run Ceylon Electricity Board, Power and Energy Minister Kanchana Wijeskera said.

“Cabinet approval was granted today to the recommendations proposed by the committee on Restructuring CEB,” he said in a message.

“The Electricity Reforms Bill will be drafted within a month to begin the unbundling process of CEB & work on a rapid timeline to get the approval of the Parliament needed.”

Sri Lanka’s Ceylon Electricity Board finances had been hit by failure to operate cost reflective tariffs and there are capacity shortfalls due to failure to implement planned generators in time. (Colombo/Nov28/2022)

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Sri Lanka new CB law to cabinet soon as IMF prior action

ECONOMYNEXT – Sri Lanka’s new central bank law will be submitted to the cabinet as a prior action of International Monetary Fund with clauses to improve governance and legalize ‘flexible’ inflation targeting, Central Bank Governor Nandalal Weerasinghe said.

Under the new law members of the monetary board will be appointed by the country’s Constitutional Council replacing the current system of the Finance Minister making appointments.

“It will be a bipartisan approach,” Governor Weerasinghe told an investor forum organized by CT CLSA Securities, Colombo-based brokerage.

“The central bank’s ability to finance the budget deficit will be taken out. Thirdly the flexible inflation targeting regime will be recognized in the law as the framework.”

The law will also make macro-prudential surveillance formally under the bank.

There will be two governing boards, one for the management of the agency and one to conduct monetary policy.

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