Biomass power producer forced to shut due to CEB’s unpaid arrears

Company saves country USD 3 mn. Annually

by Ifham Nizam

An independent power supplier to Sri Lanka’s national grid whose supplies could annually save the country Rs 450 Million in energy costs and USD 3 million in foreign exchange has shut down because of huge unpaid arrears owed to it by the Ceylon Electricity Board and because of the very large recent increases in the cost of wood fuel.

Mirigama Dendro Power (MDP) is a 4 MW biomass plant which provides 3.8 MW of power to Sri Lanka’s national grid annually.

“CEB has not paid us from December last year and owes us Rs 194 million” said MDP Chairman Dr. Romesh Bandaranaike.

The price of fuelwood used by the Plant has increased by over 75% because of the recent exchange rate changes and the price increases in diesel, which has prompted many industries to change the fuel used by their boilers, which supply process steam, from diesel to wood.

“Raw wood has increased from Rs 4/kg. to more than Rs 7/kg and wood chips from Rs 7/kg to over Rs 11/kg. At these prices, it is not economical to run the plant. It will only be viable if there is a substantial increase in what we are paid for the energy we supply to the CEB,” Bandaranaike said.

“We need a minimum increase of Rs 7-8 per kWh from the present Rs 26.65 we are paid if we are to meet our costs and service our bank loans.”

He adds: “The tariff formula in our agreement with the CEB is “backward looking with five year past averages.” It was never designed to handle situations like the present with massive inflation.

The Rs 34-35 per kWh that Dr. Bandaranaike has requested is still substantially lower than what it costs the CEB to generate the same energy, which is Rs 41 per kWh using coal and over Rs 70 per kWh using diesel according to him. The plant can generate 28,000,000 kWh annually.

The savings to the CEB by purchasing power from the plant at Rs 34/kWh rather than generating the power itself at an average cost of Rs 50 per kWh would be Rs. 448 million per year.

Since the plant uses local fuel rather than imported coal or diesel, the foreign exchange savings would be in excess of USD three million, if the average fuel cost per kWh for the CEB’s plants whose power will be replaced is Rs 40.

“We owe the banks Rs 610 million in project loans and Rs 100 million in overdrafts. The collateral for these loans is the plant assets. We have asked the banks to take over our plant because we cannot operate it any more,” Bandaranaike said.

“The shareholders are resigned to losing their equity investment which was in excess of Rs 500 million. The banks will also lose their loan funds because no one will want to take over and run the Plant even if it is given at Rs 1.”

“It is a shame that a Plant which can generate power cheaper than the CEB’s coal power plants and also save USD three million in foreign exchange each year will have to be sold for scrap.”

He says that given his long experience with dealing with the CEB – he used to be the CEO of Sri Lanka’s largest small hydro power developer – there is little hope in approaching the CEB to request a revision in their present tariff and expedite payments.

Repeated requests to the CEB for payments of even a portion of their arrears have also fallen on deaf ears.

“They have so many other problems with power cuts due to fuel unavailability, consumer tariffs substantially lower than costs which result in massive losses, and so on. We are a tiny part of the solution and the CEB has no time for us.”

He says that MDP will make one last attempt to save their plant by going along with the banks to the Public Utility Commission and see if they can make “sanity prevail.”