Features
CEB Seeks 100% Tariff Increase but Blocks 4000 MW of Lower-Cost Renewable Energy Generation: What’s the Logic?
by Anil Cabraal, PhD
Power crisis worsened due to CEB favouring oil and coal power over lower-cost renewable energy
On 27 April 2022, the Renewable Energy Associations announced that 1,251 MW of Non-conventional Renewable Energy (NCRE) plants will have to cease operating, as the CEB owes them Rs.22 billion. NCRE includes mini-hydro, wind, solar, biomass and others that use renewable energy for power generation. The consequences will be severe – greater oil-fired generation, higher oil imports, increased CEB financial losses, depletion of foreign reserves, job losses for NCRE plant employees, default risk to banks holding Rs.60 billion in NCRE debt and NCRE investor losses.
Meanwhile, the CEB has blocked over 4,000 MW of new NCRE plant investments. According to the Auditor General’s 08 February 2022 report, the CEB had rejected signing power purchase agreements for 1,374 NCRE projects with an aggregate capacity of 4,015 MW, which the Sustainable Energy Authority (SEA) had approved from 2017 to 2019 [https://bit.ly/3rYiVPD]. Had these projects been approved by CEB and built, they could have supplied electricity at the prevailing Rs.16.07 to 25.09 per kWh tariff, far less than the cost of diesel electricity today.
On 30 April 2022, CEB Chairman stated that CEB is seeking a 100% tariff increase to pay for staff salaries, fuel imports and other liabilities [https://bit.ly/3s4ZWTv]. While seeking a tariff increase, is it not incumbent on the CEB to make sure they obtain electricity from the lowest cost suppliers?
Tariff update needed to revive NCRE development
Despite the potential for NCRE in Sri Lanka, the NCRE tariff offered by CEB ,under their Small Power Purchase (SPP) Program, has remained unchanged since 2012, thereby depressing the financial viability of such projects. A Cabinet-appointed Committee recommended a new NCRE tariff regime in December 2021 to the responsible State Minister. To update the tariffs to today’s economic reality, the author recalculated the tariffs using 2022 parameters for four sample NCRE technologies, using the 2012 PUCSL-approved methodology. For new NCRE power plants, Table 1 shows a comparison of the prevailing 2012 tariff, the 2021 Tariff Committee’s proposed tariff, and the author’s 2022 tariff for mini-hydro, solar, wind and biomass dendro (sustainably harvested biomass).
Table Comparison of NCRE 2022 Tariff with Prevailing 2012 Tariff and Tariff Committee’s Proposed 2021 Tariff
Notably, the Tariff Committee’s proposed 2021 NCRE tariff is lower than the prevailing 2012 tariff, despite exchange rate and other factors deteriorating from 2012 to 2021. On a positive note, US dollar investment costs of solar and wind technologies did decline significantly. NCRE which are financially nonviable in 2022 at the prevailing 2012 tariff, will be worse off under the 2021 tariff.
The severe economic shocks of 2022 are the principal reasons why the calculated 2022 tariffs are higher. Calculated higher tariffs in 2022 are due to: (a) The sharp rupee depreciation which makes investments costlier in rupee terms, as 70-80% of NCRE investment is foreign content. However, unlike oil or coal-powered generation, NCRE generation is immune to imported fuel rupee-price increases; (b) Credit has become more expensive. Even the author’s assumption of 18% interest rate may be too low. (2021 Tariff Committee assumed 9.85% interest). The one-year T-Bill rate is now more than 25%; (c) Inflation is higher; and (d) In the case of biomass-fuelled generation, fuelwood prices have risen sharply due to oil and LPG shortages and their price increases.
While the 2022 tariff may seem high, they are less costly than electricity from oil and coal today, as discussed below.
Is NCRE investment in 2022 worthwhile at these higher tariffs?
The answer is a Yes, as illustrated in Figure 1 which compares the flat (“levelized”) electricity cost, from NCRE, coal and oil under various conditions. Conservatively, the analysis assumed more favourable financing terms for CEB-owned coal and oil power plant investments, than for private sector NCRE or emergency diesel (Diesel IPP) investments.
NCRE electricity is cheaper than that from new oil-fired generation, even from efficient combined cycle plants. At today’s coal prices, NCRE electricity costs can be less than that from a new coal plant. The results are unsurprising as, once built, currency depreciation only marginally affects NCRE plants, unlike oil and coal plant operations. NCRE potential is very high in Sri Lanka.
Figure Comparison of Levelized Electricity Cost of NCRE, Oil and Coal Power Generation
What are the savings to CEB and to Sri Lanka from unblocking NCRE Investments?
The savings can be considerable to CEB by avoiding paying for higher cost electricity, and to the Nation from reduced fuel imports. As an example, implementing 800 MW (or 20% of the blocked projects) could supply about 1,800 GWh of NCRE electricity annually. In comparison, in 2020, oil thermal IPPs supplied 2,717 GWh of electricity and CEB oil thermals generated 1,462 GWh. Therefore 1,800 GWh of NCRE electricity could displace more expensive oil thermal generation, especially the more expensive IPP diesel generation. CEB may, however, need to upgrade its system control and operations to accommodate increased generation from variable solar and wind power.
The 800 MW of NCRE generation could offset about 400 million litres of diesel fuel annually. The net financial savings to CEB is Rs.37 billion per year (assumes paying flat 2022 tariff for NCRE, while avoiding paying for diesel fuel at US$0.75/litre, the price CEB paid for 40,000 MT in April 2022). The saving to Sri Lanka by avoiding diesel imports is about US$300 million for the year from these 800 MW of NCRE investments. The NCRE investment required is about US$1,000 million, giving a simple payback of 3.3 years in imported diesel fuel savings.
Special case of existing biomass power plants
Even if CEB pays the outstanding invoices for NCRE-supplied electricity, the existing biomass power plants (37 MW) are presently facing an existential threat to their financial survival due to the sharp rise in fuelwood prices (from about Rs.7/kg to Rs.12/kg for chipped fuelwood in 2022). Unless the Cabinet takes mitigatory actions immediately and approves an amendment to the existing Biomass Dendro Power Purchase Agreement to permit a higher tariff, these plants will cease operations and Sri Lanka will lose access to these 37 MW. Even at a fuelwood price of Rs.12/kg, electricity from these existing plants is far cheaper than CEB paying for diesel fuel. Paradoxically, unlike these biomass plants, oil-fired IPPs can pass-through the fuel cost to CEB and avoid the fuel price risk.
What must the Government and CEB do?
Given the significant benefits from investments in NCRE, the Government must direct the Ministry of Power and Energy, CEB, PUCSL and SEA to immediately undertake the following:
* Most urgently, CEB must settle its arrears of Rs.22 billion to NCRE producers.
*Tariff Committee must update the NCRE cost-reflective tariffs to 2022 conditions in consultation with technology and project finance specialists.
*PUCSL must approve, and CEB must adopt the tariff as soon as possible. The CEB and PUCSL must commit to updating the tariffs at least every 2 years.
*CEB must commit to accepting over 1,000 NCRE projects that they have hitherto blocked and invite other NCRE proposals.
*SEA should invite companies to revise feasibility studies and update their NCRE applications. Companies must respond quickly. SEA should, without delays or additional fees, review and approve the compliant proposals.
*CEB must issue letters of intent and sign Power Purchase Agreements without delay for compliant NCRE proposals.
*CEB must commit to providing necessary infrastructure and control systems upgrades required to connect these NCRE facilities to the CEB grid.
*SEA, with Ministry of Finance assistance, could mobilize financing from commercial banks and international financiers, particularly climate-friendly investors.
As Mr. Manjula Perera, CEO of Windforce Ltd., representing the renewable energy community, stated recently: “If the Power Ministry, CEB, SEA, and PUCSL work hand in hand and get the necessary policies in place, adding 1,000 MWs from NCRE within the next 2 years by local RE developers will not be a challenge”.
In conclusion, successfully accomplishing these actions will permit NCRE technologies and the private sector to help Sri Lanka address its near-term energy-sector and balance of payment challenges and to achieve the Government’s goal of 70% RE generation by 2030.
03 May 2022
Disclaimer: The views, data, assumptions, analyses, results interpretations, and opinions expressed in the text belong solely to the author, and not necessarily to any other group or individual, including those cited in the article.
The author is a former Lead Energy Specialist at the World Bank with specialization in renewable energy project development and financing in Asian and African countries, including in Sri Lanka. This article is based on his paper “Mobilizing Renewable Energy to Overcome the Energy and Financial Crisis: The Need for a Credible Renewable Electricity Tariff,” https://bit.ly/3Ltabsx
Features
The heart-friendly health minister
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.
Features
A LOVING TRIBUTE TO JESUIT FR. ALOYSIUS PIERIS ON HIS 90th BIRTHDAY
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.
Features
A fairy tale, success or debacle
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 . )