Features
A viable FIT for Sri Lankan electricity industry
By Eng. Parakrama Jayasinghe
parajayasinghe@gmail.com
It is common wisdom to consider that the reliable supply of energy, particularly electricity, is an essential requirement for growth of the GDP by other sectors of the economy. But it must be realized that the energy services industry itself could be a major contributor to the GDP growth by itself, while serving the needs of all other sectors of the economy. This paradigm has been exploited to the maximum by the middle east countries, as well as coal exporting countries. Hitherto Sri Lanka has only concentrated on the need to provide continuous energy to other sectors of the economy both Electricity and other sources of energy to support their growth. In the electricity Sector until 1996, when 95% of the electricity was generated using indigenous renewable resources and thereby low electricity tariff levels, this appeared acceptable. However, with increase in the energy demand and over dependence on imported fossil fuels, this policy has created innumerable problems, with heavy drain on FOREX and higher cost of electricity and transport.
Ostrich attitude in continuing to depend on imported fossil fuels
There appears to be a sense of complacency, with the state pretending to be comfortable in providing uninterrupted power, ignoring the heavy burden on the balance of payments. Obviously, the fact that Sri Lanka had to face the ignominy of declaring bankruptcy and the need to repay the Billions borrowed in US Dollars loans, does not seem to be a consideration of those in charge of the energy sector. Such irresponsible behaviour is not what is expected from a government.
However, in recent times with the development of renewable energy technologies and their proven feasibility technically and financially and favourable impact on Sri Lanka’s electricity supply, it is indeed unfortunate that this realism and immense opportunity is ignored by our energy planners. The recent events have dispelled the myth that renewable energy is expensive and it is now well established that all commercially established renewable source-based power generation is definitely more economical than any form of fossil fuel-based electricity. Sri Lanka is also blessed with such renewable energy resources of capacity many times over our needs for several decades to come. This bonanza should and could serve as the vehicle through which Sri Lanka can overcome the present economic debacle. (See diagram)
The Feed in Tariff – Driver for RE Development
The private sector has demonstrated its commitment and capability to contribute towards this national service even under difficult circumstances and sometimes willful barriers created by vested interests wanting to perpetuate the continued dependence on imported fossil fuels.
The most visionary and progressive systems offered under the Surya Bala Sangramaya has already paid dividends with 825 MW of roof top solar providing 1200 GWh annually to the national energy mix. This may be a unique innovation in the whole world and Sri Lanka’s gratitude is due to everyone who created and developed this system. Also, its benefits and potential scope has expanded greatly with the progressive relaxation of the regulations on system capacities permitted by the CEB. It is hoped that they would continue to support this development by working towards the target of one million roof top systems as the first target, which is of great value to the cash strapped nation.
The recent upheavals in the economy and balance of payments, which have been addressed in the tariff revision in November 2022, offering a fixed tariff over the entire contract period, which contributed to the viability of the existing FITs resulted in the exponential growth of the sector as shown below. (See graph)
The somewhat controversial and ill-conceived system of variable tariff announced in June 2023 did not evoke any confidence in the investors, both due to its unnecessary complexity and the uncertainty making it totally nonbankable. A developer has no means of predicting the FIT he would get in the future, as the system is expected to be updated every three months. While the parameters used for the calculation have been declared, the actual values used for the original declaration nor the amendment done in October 2023, have not been published. Any developer would like to make his own predictions for the future before accepting any such scheme however attractive the original numbers were. The first amendment in October itself has shown the very likely downward trend scaring away any investors. Thankfully the CEB has provided the option of selecting the previous Fixed Tariff gazetted in November 2022. I believe that most if not all new projects have opted for the same.
This message must be heard loud and clear by the present committee reviewing the FIT system.
The attraction of Dendro Power
While the Roof Top Solar PV system supported by the regulations under the Surya Bala Sangraamaya, which by any standard is a most visionary approach, provided the means for the consumers even those in the domestic category to contribute participate in the nation’s power sector development by becoming “Prosumers” perhaps an even more far reaching and socially significant contribution by the people is possible by the development of the Dendro Energy, with Sri Lanka’s own proven concept of using sustainably grown short rotation coppicing species such as Gliricidia, where the rural farmers become the suppliers of the fuel for generation of firm energy on a year round 24/7 basis. It is important to recognize that Dendro Power is available all the time with a Plant Factor of 85% Vs 16% from Solar and may be 30% from Wind, with multiple spin off benefits to many sectors of the economy.
While we are thankful to the present minister for removing the artificially created obstruction of Dendro Development over the past six years, an attractive FIT is needed to win back the investors who abandoned the industry.
As a matter of interest, the flow of funds to the rural economy even from a 10 MW Dendro power plant is over Rs 1200 million annually, providing firm power which would otherwise be generated using imported fossil fuels. The savings in FOREX by the equivalent reduction of oil-based power is US $ 20 Million. This opportunity unfortunately does not attract any official attention. This is clearly the means of ensuring
“Power for the People by the People”
In this light the provisions in the proposed new Feed in Tariff structure needs urgent re-consideration as noted below
The Need for Level Playing Field
We give below a few specific examples of how this tariff mechanism discriminates against renewable energy (RE) producers particularly the local investors, and clearly disadvantages RE producers in ways that fossil fuel suppliers are not:
Price caps on RE producers; No price caps on fossil fuel power suppliers: CEB marginal cost of dispatchable plants is set as the maximum price cap for RE producers. For fossil fuel producers, there is no such price cap. At the very least, the CEB should treat all energy producers equally, and since fossil fuel producers do not have a price cap in their contracts, such a price cap should be removed from RE contracts as well. It is time that the CEB declared the true cost of generation using fossil fuel, both in CEBs owned plants and the IPPs, calculated on the same basis as the REs using the same formulae and the appropriate parameters including the cost of externalities. This will clearly highlight the value and urgency to provide the maximum support for RE development.
Tariff recalculation on a quarterly basis: This is totally impractical and poses a further disincentive, Project planning and financial closure invariably extend beyond three months, particularly for the larger commercial ventures, and such a quarterly tariff recalculation, which is not a feature present anywhere else in the world, makes financial planning for a large venture quite impossible. In order to capture any variations in the relevant parameter an annual re-calculation is more practical and should apply only for those projects approved in the respective year and not with retrospective effect.
It is apparent that this condition has been brought in consideration of the most disadvantageous financial parameters applicable in Sri Lanka at the time of development of this tariff system (June 2023) and in expectation of easing of these in the future. But the way it is applied, shows lack of appreciation of the ground situation, disincentivising the development of RE, while continually spending millions of dollars for use of oil for generation, which some of which could have been averted by providing favourable terms for the RE developers ready to enter in to the market now. There is a clear lack of holistic approach towards the long term national interest as described in the preamble.
Additional burden to RE investors through an Escrow account requirement: deposit of 2% of revenue in an Escrow Account is required of RE investors, another additional requirement imposed on RE investors alone.
This is further disincentive and a lopsided logic ignoring that the CEB has defaulted in payments for the RE developers for nearly a year or more. This has driven many such investors to near bankruptcy. Also such provisions are a further barrier for the local investors as against the large foreign investors for whom such requirements would not be a major burden.
A Clear Commitment from the CEB officials for RE Development
It is well known that, in spite of the protestations of support for the development of the renewable energy development by the Ministry, CEB and the SLSEA, the field level reality is quite different. All developers would testify to the hassle they face at every level and the inordinate delays by the respective officers, not limited to those in the Utility, but the plethora of other state agencies (other than for Roof Top Systems) , who appear to believe that hindrance or delaying the projects is their duty . (With apologies to the few officials who appreciate the national importance of RE and strive to ease the path of approval process).
Essential Features of a viable Feed in Tariff
We therefore request the following as minimum measures to keep all energy producers for the CEB on an equal footing:
* Remove the price cap on RE producers
* Remove the references to marginal cost and retain the cost+profit model
* Tariff revision on an annual basis (not quarterly)
* The capital cost component applicable at time of signing SPPA to be fixed for the period of loan recovery
* Remove the requirement for Escrow accounts
* Reset inflation to a more realistic level and adjust O&M charges accordingly
* All tariff to be paid in Sri Lankan rupees. Any foreign investors must receive the tariff in rupees , but be permitted to repatriate the investment and fair profits under the systems prevailing under the BOI
Most importantly, the energy sector should be a Sri Lankan Industry to ensure future energy security and it is requested that a clear and simplified tariff calculation mechanism is provided so that investors and ‘prosumers’ themselves can use the mechanism to calculate and forecast financial feasibility of a project.
by Dr Gotabhya Ranasinghe
Senior Consultant Cardiologist
National Hospital Sri Lanka
When we sought a meeting with Hon Dr. Ramesh Pathirana, Minister of Health, he graciously cleared his busy schedule to accommodate us. Renowned for his attentive listening and deep understanding, Minister Pathirana is dedicated to advancing the health sector. His openness and transparency exemplify the qualities of an exemplary politician and minister.
Dr. Palitha Mahipala, the current Health Secretary, demonstrates both commendable enthusiasm and unwavering support. This combination of attributes makes him a highly compatible colleague for the esteemed Minister of Health.
Our discussion centered on a project that has been in the works for the past 30 years, one that no other minister had managed to advance.
Minister Pathirana, however, recognized the project’s significance and its potential to revolutionize care for heart patients.
The project involves the construction of a state-of-the-art facility at the premises of the National Hospital Colombo. The project’s location within the premises of the National Hospital underscores its importance and relevance to the healthcare infrastructure of the nation.
This facility will include a cardiology building and a tertiary care center, equipped with the latest technology to handle and treat all types of heart-related conditions and surgeries.
Securing funding was a major milestone for this initiative. Minister Pathirana successfully obtained approval for a $40 billion loan from the Asian Development Bank. With the funding in place, the foundation stone is scheduled to be laid in September this year, and construction will begin in January 2025.
This project guarantees a consistent and uninterrupted supply of stents and related medications for heart patients. As a result, patients will have timely access to essential medical supplies during their treatment and recovery. By securing these critical resources, the project aims to enhance patient outcomes, minimize treatment delays, and maintain the highest standards of cardiac care.
Upon its fruition, this monumental building will serve as a beacon of hope and healing, symbolizing the unwavering dedication to improving patient outcomes and fostering a healthier society.We anticipate a future marked by significant progress and positive outcomes in Sri Lanka’s cardiovascular treatment landscape within the foreseeable timeframe.
by Fr. Emmanuel Fernando, OMI
Jesuit Fr. Aloysius Pieris (affectionately called Fr. Aloy) celebrated his 90th birthday on April 9, 2024 and I, as the editor of our Oblate Journal, THE MISSIONARY OBLATE had gone to press by that time. Immediately I decided to publish an article, appreciating the untiring selfless services he continues to offer for inter-Faith dialogue, the renewal of the Catholic Church, his concern for the poor and the suffering Sri Lankan masses and to me, the present writer.
It was in 1988, when I was appointed Director of the Oblate Scholastics at Ampitiya by the then Oblate Provincial Fr. Anselm Silva, that I came to know Fr. Aloy more closely. Knowing well his expertise in matters spiritual, theological, Indological and pastoral, and with the collaborative spirit of my companion-formators, our Oblate Scholastics were sent to Tulana, the Research and Encounter Centre, Kelaniya, of which he is the Founder-Director, for ‘exposure-programmes’ on matters spiritual, biblical, theological and pastoral. Some of these dimensions according to my view and that of my companion-formators, were not available at the National Seminary, Ampitiya.
Ever since that time, our Oblate formators/ accompaniers at the Oblate Scholasticate, Ampitiya , have continued to send our Oblate Scholastics to Tulana Centre for deepening their insights and convictions regarding matters needed to serve the people in today’s context. Fr. Aloy also had tried very enthusiastically with the Oblate team headed by Frs. Oswald Firth and Clement Waidyasekara to begin a Theologate, directed by the Religious Congregations in Sri Lanka, for the contextual formation/ accompaniment of their members. It should very well be a desired goal of the Leaders / Provincials of the Religious Congregations.
Besides being a formator/accompanier at the Oblate Scholasticate, I was entrusted also with the task of editing and publishing our Oblate journal, ‘The Missionary Oblate’. To maintain the quality of the journal I continue to depend on Fr. Aloy for his thought-provoking and stimulating articles on Biblical Spirituality, Biblical Theology and Ecclesiology. I am very grateful to him for his generous assistance. Of late, his writings on renewal of the Church, initiated by Pope St. John XX111 and continued by Pope Francis through the Synodal path, published in our Oblate journal, enable our readers to focus their attention also on the needed renewal in the Catholic Church in Sri Lanka. Fr. Aloy appreciated very much the Synodal path adopted by the Jesuit Pope Francis for the renewal of the Church, rooted very much on prayerful discernment. In my Religious and presbyteral life, Fr.Aloy continues to be my spiritual animator / guide and ongoing formator / acccompanier.
Fr. Aloysius Pieris, BA Hons (Lond), LPh (SHC, India), STL (PFT, Naples), PhD (SLU/VC), ThD (Tilburg), D.Ltt (KU), has been one of the eminent Asian theologians well recognized internationally and one who has lectured and held visiting chairs in many universities both in the West and in the East. Many members of Religious Congregations from Asian countries have benefited from his lectures and guidance in the East Asian Pastoral Institute (EAPI) in Manila, Philippines. He had been a Theologian consulted by the Federation of Asian Bishops’ Conferences for many years. During his professorship at the Gregorian University in Rome, he was called to be a member of a special group of advisers on other religions consulted by Pope Paul VI.
Fr. Aloy is the author of more than 30 books and well over 500 Research Papers. Some of his books and articles have been translated and published in several countries. Among those books, one can find the following: 1) The Genesis of an Asian Theology of Liberation (An Autobiographical Excursus on the Art of Theologising in Asia, 2) An Asian Theology of Liberation, 3) Providential Timeliness of Vatican 11 (a long-overdue halt to a scandalous millennium, 4) Give Vatican 11 a chance, 5) Leadership in the Church, 6) Relishing our faith in working for justice (Themes for study and discussion), 7) A Message meant mainly, not exclusively for Jesuits (Background information necessary for helping Francis renew the Church), 8) Lent in Lanka (Reflections and Resolutions, 9) Love meets wisdom (A Christian Experience of Buddhism, 10) Fire and Water 11) God’s Reign for God’s poor, 12) Our Unhiddden Agenda (How we Jesuits work, pray and form our men). He is also the Editor of two journals, Vagdevi, Journal of Religious Reflection and Dialogue, New Series.
Fr. Aloy has a BA in Pali and Sanskrit from the University of London and a Ph.D in Buddhist Philosophy from the University of Sri Lankan, Vidyodaya Campus. On Nov. 23, 2019, he was awarded the prestigious honorary Doctorate of Literature (D.Litt) by the Chancellor of the University of Kelaniya, the Most Venerable Welamitiyawe Dharmakirthi Sri Kusala Dhamma Thera.
Fr. Aloy continues to be a promoter of Gospel values and virtues. Justice as a constitutive dimension of love and social concern for the downtrodden masses are very much noted in his life and work. He had very much appreciated the commitment of the late Fr. Joseph (Joe) Fernando, the National Director of the Social and Economic Centre (SEDEC) for the poor.
In Sri Lanka, a few religious Congregations – the Good Shepherd Sisters, the Christian Brothers, the Marist Brothers and the Oblates – have invited him to animate their members especially during their Provincial Congresses, Chapters and International Conferences. The mainline Christian Churches also have sought his advice and followed his seminars. I, for one, regret very much, that the Sri Lankan authorities of the Catholic Church –today’s Hierarchy—- have not sought Fr.
Aloy’s expertise for the renewal of the Catholic Church in Sri Lanka and thus have not benefited from the immense store of wisdom and insight that he can offer to our local Church while the Sri Lankan bishops who governed the Catholic church in the immediate aftermath of the Second Vatican Council (Edmund Fernando OMI, Anthony de Saram, Leo Nanayakkara OSB, Frank Marcus Fernando, Paul Perera,) visited him and consulted him on many matters. Among the Tamil Bishops, Bishop Rayappu Joseph was keeping close contact with him and Bishop J. Deogupillai hosted him and his team visiting him after the horrible Black July massacre of Tamils.
Sri Lanka-Singapore Free Trade Agreement
By Gomi Senadhira
senadhiragomi@gmail.com
“You might tell fairy tales, but the progress of a country cannot be achieved through such narratives. A country cannot be developed by making false promises. The country moved backward because of the electoral promises made by political parties throughout time. We have witnessed that the ultimate result of this is the country becoming bankrupt. Unfortunately, many segments of the population have not come to realize this yet.” – President Ranil Wickremesinghe, 2024 Budget speech
Any Sri Lankan would agree with the above words of President Wickremesinghe on the false promises our politicians and officials make and the fairy tales they narrate which bankrupted this country. So, to understand this, let’s look at one such fairy tale with lots of false promises; Ranil Wickremesinghe’s greatest achievement in the area of international trade and investment promotion during the Yahapalana period, Sri Lanka-Singapore Free Trade Agreement (SLSFTA).
It is appropriate and timely to do it now as Finance Minister Wickremesinghe has just presented to parliament a bill on the National Policy on Economic Transformation which includes the establishment of an Office for International Trade and the Sri Lanka Institute of Economics and International Trade.
Was SLSFTA a “Cleverly negotiated Free Trade Agreement” as stated by the (former) Minister of Development Strategies and International Trade Malik Samarawickrama during the Parliamentary Debate on the SLSFTA in July 2018, or a colossal blunder covered up with lies, false promises, and fairy tales? After SLSFTA was signed there were a number of fairy tales published on this agreement by the Ministry of Development Strategies and International, Institute of Policy Studies, and others.
However, for this article, I would like to limit my comments to the speech by Minister Samarawickrama during the Parliamentary Debate, and the two most important areas in the agreement which were covered up with lies, fairy tales, and false promises, namely: revenue loss for Sri Lanka and Investment from Singapore. On the other important area, “Waste products dumping” I do not want to comment here as I have written extensively on the issue.
1. The revenue loss
During the Parliamentary Debate in July 2018, Minister Samarawickrama stated “…. let me reiterate that this FTA with Singapore has been very cleverly negotiated by us…. The liberalisation programme under this FTA has been carefully designed to have the least impact on domestic industry and revenue collection. We have included all revenue sensitive items in the negative list of items which will not be subject to removal of tariff. Therefore, 97.8% revenue from Customs duty is protected. Our tariff liberalisation will take place over a period of 12-15 years! In fact, the revenue earned through tariffs on goods imported from Singapore last year was Rs. 35 billion.
The revenue loss for over the next 15 years due to the FTA is only Rs. 733 million– which when annualised, on average, is just Rs. 51 million. That is just 0.14% per year! So anyone who claims the Singapore FTA causes revenue loss to the Government cannot do basic arithmetic! Mr. Speaker, in conclusion, I call on my fellow members of this House – don’t mislead the public with baseless criticism that is not grounded in facts. Don’t look at petty politics and use these issues for your own political survival.”
I was surprised to read the minister’s speech because an article published in January 2018 in “The Straits Times“, based on information released by the Singaporean Negotiators stated, “…. With the FTA, tariff savings for Singapore exports are estimated to hit $10 million annually“.
As the annual tariff savings (that is the revenue loss for Sri Lanka) calculated by the Singaporean Negotiators, Singaporean $ 10 million (Sri Lankan rupees 1,200 million in 2018) was way above the rupees’ 733 million revenue loss for 15 years estimated by the Sri Lankan negotiators, it was clear to any observer that one of the parties to the agreement had not done the basic arithmetic!
Six years later, according to a report published by “The Morning” newspaper, speaking at the Committee on Public Finance (COPF) on 7th May 2024, Mr Samarawickrama’s chief trade negotiator K.J. Weerasinghehad had admitted “…. that forecasted revenue loss for the Government of Sri Lanka through the Singapore FTA is Rs. 450 million in 2023 and Rs. 1.3 billion in 2024.”
If these numbers are correct, as tariff liberalisation under the SLSFTA has just started, we will pass Rs 2 billion very soon. Then, the question is how Sri Lanka’s trade negotiators made such a colossal blunder. Didn’t they do their basic arithmetic? If they didn’t know how to do basic arithmetic they should have at least done their basic readings. For example, the headline of the article published in The Straits Times in January 2018 was “Singapore, Sri Lanka sign FTA, annual savings of $10m expected”.
Anyway, as Sri Lanka’s chief negotiator reiterated at the COPF meeting that “…. since 99% of the tariffs in Singapore have zero rates of duty, Sri Lanka has agreed on 80% tariff liberalisation over a period of 15 years while expecting Singapore investments to address the imbalance in trade,” let’s turn towards investment.
Investment from Singapore
In July 2018, speaking during the Parliamentary Debate on the FTA this is what Minister Malik Samarawickrama stated on investment from Singapore, “Already, thanks to this FTA, in just the past two-and-a-half months since the agreement came into effect we have received a proposal from Singapore for investment amounting to $ 14.8 billion in an oil refinery for export of petroleum products. In addition, we have proposals for a steel manufacturing plant for exports ($ 1 billion investment), flour milling plant ($ 50 million), sugar refinery ($ 200 million). This adds up to more than $ 16.05 billion in the pipeline on these projects alone.
And all of these projects will create thousands of more jobs for our people. In principle approval has already been granted by the BOI and the investors are awaiting the release of land the environmental approvals to commence the project.
I request the Opposition and those with vested interests to change their narrow-minded thinking and join us to develop our country. We must always look at what is best for the whole community, not just the few who may oppose. We owe it to our people to courageously take decisions that will change their lives for the better.”
According to the media report I quoted earlier, speaking at the Committee on Public Finance (COPF) Chief Negotiator Weerasinghe has admitted that Sri Lanka was not happy with overall Singapore investments that have come in the past few years in return for the trade liberalisation under the Singapore-Sri Lanka Free Trade Agreement. He has added that between 2021 and 2023 the total investment from Singapore had been around $162 million!
What happened to those projects worth $16 billion negotiated, thanks to the SLSFTA, in just the two-and-a-half months after the agreement came into effect and approved by the BOI? I do not know about the steel manufacturing plant for exports ($ 1 billion investment), flour milling plant ($ 50 million) and sugar refinery ($ 200 million).
However, story of the multibillion-dollar investment in the Petroleum Refinery unfolded in a manner that would qualify it as the best fairy tale with false promises presented by our politicians and the officials, prior to 2019 elections.
Though many Sri Lankans got to know, through the media which repeatedly highlighted a plethora of issues surrounding the project and the questionable credentials of the Singaporean investor, the construction work on the Mirrijiwela Oil Refinery along with the cement factory began on the24th of March 2019 with a bang and Minister Ranil Wickremesinghe and his ministers along with the foreign and local dignitaries laid the foundation stones.
That was few months before the 2019 Presidential elections. Inaugurating the construction work Prime Minister Ranil Wickremesinghe said the projects will create thousands of job opportunities in the area and surrounding districts.
The oil refinery, which was to be built over 200 acres of land, with the capacity to refine 200,000 barrels of crude oil per day, was to generate US$7 billion of exports and create 1,500 direct and 3,000 indirect jobs. The construction of the refinery was to be completed in 44 months. Four years later, in August 2023 the Cabinet of Ministers approved the proposal presented by President Ranil Wickremesinghe to cancel the agreement with the investors of the refinery as the project has not been implemented! Can they explain to the country how much money was wasted to produce that fairy tale?
It is obvious that the President, ministers, and officials had made huge blunders and had deliberately misled the public and the parliament on the revenue loss and potential investment from SLSFTA with fairy tales and false promises.
As the president himself said, a country cannot be developed by making false promises or with fairy tales and these false promises and fairy tales had bankrupted the country. “Unfortunately, many segments of the population have not come to realize this yet”.
(The writer, a specialist and an activist on trade and development issues . )
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