Closure of Public Utilities Commission – Cutting off the nose to spite the face?

by Dr Janaka Ratnasiri

A news item, in The Island of 03.12.2020, described an attempt being made by the Government to close down the Public Utilities Commission of Sri Lanka (PUCSL) and to absorb its technical staff to the Department of National Planning, Ministry of Power and to the Treasury, on a directive of a letter supposedly sent by the President’s Secretary to the Secretary to the Treasury.

BUDGET SPEECH 2021 AND LETTER OF PRESIDENT’S SECRETARY

The letter further says the decision was taken in line with the budget proposal referring to the PUCSL and the Ceylon Electricity Board (CEB) “to create an efficient work environment to implement power generation plans that have remained unimplemented for years”. Though the President’s letter says that this decision was taken, in line with the Budget Speech, what the Budget Speech says is, “I also propose to amend the Public Utilities Commission Act and the Ceylon Electricity Board Act, to allow the rapid implementation of projects”. There is no reference to closing down of the PUCSL in the Budget Speech.

The letter (circulated in social media, and tabled in the Parliament) says that “I am advised to instruct you to take necessary procedural steps to close down and consequent steps to absorb the technical staff to other relevant organizations”. A missing part of this letter is that it does not say who advised the President’s Secretary to send a letter instructing the Treasury’s Secretary to close down the PUCSL. It certainly cannot be the President to make such an unwise, illegal step. Does it mean that the proposal to close down the PUCSL is an initiative of the President’s Secretary or was there a hidden hand behind this move? If that is the case, the President should remove his Secretary rather than closing down the PUCSL.

DELAYS IN IMPLEMENTING POWER PROJECTS

While the Budget Speech wants the PUCSL and the CEB Acts to be amended to implement power projects rapidly, the President’s Secretary says the PUCSL has to be closed down to create an efficient work environment, to implement power generation plans, that have remained unimplemented for years. Both documents are trying to put the blame, for delays in implementing power projects and plans, on the PUCSL. In a country, any decisions taken at the highest level should be evidence-based. Otherwise, the country cannot progress. In this instance, both parties are misled and erred in their decisions.

The writer has published extensively on the status of our power sector, in particular on the role of the CEB in causing all these delays. The reader is referred to The Island of 27th and 28th December 2018, and of 28.03.2019, written on this topic. The CEB took over 10 years to finalize plans to build a 500 MW coal power plant, at Sampur, which eventually had to be aborted, partly because of this delay. Then, it took over four years to finalize, awarding a contract to build a 300 MW gas power plant, at Kerawalapitiya, on BOOT basis. The CEB is solely responsible for these delays and they have nothing to do with the PUCSL. The details of these delays are explained in the above two articles.

REQUIREMENTS TO BE MET BY GENERATION PLANS

The CEB also has to comply with the provisions in the original Sri Lanka Electricity Act No. 20 of 2009, according to which the Minister shall formulate general policy guidelines on generation expansion, taking into consideration the requirements for electricity in Sri Lanka in order to attain national targets for sustainable economic growth, among others. The current policy guidelines, on the Electricity Industry, approved by the Cabinet of Ministers, specifies that 50% of electricity generation has to be met from renewable sources. The National Electricity (Amendment) Act 31 of 2013 indicates that the PUCSL is required to approve the generation plans, prepared regularly by the CEB, before implementing.

The Amended Act also says that any proposals to build a new generation plant shall be based on the Least Cost Long Term Generation Expansion Plan and approved by the PUCSL. The “Least Cost Long-Term Generation Expansion Plan” has been interpreted in the Act as a plan prepared on the basis of least economic cost and meeting the technical and reliability requirements of the electricity network of Sri Lanka which is duly approved by the Commission. Here, the “economic cost” means cost taking into consideration the cost of damage to the environment and human health caused by the generating unit, which are referred to as cost of externalities.

DELAYS IN APPROVING THE CURRENT PLANS

When the generation plan is submitted for approval to the PUCSL, it is therefore necessary for it to verify whether the two above mentioned requirements, which are imposed by the Act, are satisfied. The Plan for 2018-37 submitted to the PUCSL for approval, had two cases, one based mostly on coal power and another a no-coal based case. The Plan had not accounted for cost of externalities. The PUCSL proposed to the CEB that it should consider a low-coal based case as it would reduce the cost of externalities, but the CEB was not willing to revise their Plan. The dispute dragged for nearly a year and the matter was resolved after the (former) President intervened who changed his earlier stance of “no-coal” to “yes-coal” just to accommodate the request of the CEB possibly for fear of action by the CEB Trade Unions.

The CEB’s current Plan for 2020-39 was submitted to the PUCSL, in May 2019, but yet to get approval. The correspondences that were exchanged between the PUCSL and the CEB, on approving the CEB’s Plan, is found in the PUCSL website https://www.pucsl.gov.lk/lcltgep-2020-2039/. The PUCSL has drawn the attention of the CEB, repeatedly, that the submitted Draft Plan does not conform to the Cabinet approved Guidelines with regard to having 50% of generation from renewable sources, and also it does included cost of externalities, which are the requirements of the Act.

The PUCSL sent its observations to the CEB, in October 2019, requesting them to revise it as described above, but the CEB sent a Plan, in March 2020, sans the revisions suggested by the PUCSL. Hence, the PUCSL repeated its request in May 2020, and to date, there is no information as to whether the CEB has responded. In a last weekend weekly paper, the Chairman of CEB was reported as saying that “a number of electricity projects were delayed due to the delay in getting a response from the PUCSL”. Instead of trying to blame the PUCSL for delaying electricity projects, without giving specifics, why doesn’t he pull up his officers for not revising the Plan, as requested by the PUCSL, under the powers vested in it, enabling it to conform with the Act?

Fundamentally, preparing least-cost a long-term generation plan, valid for 20 years, hence based on past prices of power plants and fuel, specifying the type of power plants that need to be installed at different time periods to generate electricity at least cost, is something not sound. This is because no one could say with reasonable accuracy what their prices will be and their availability in the future. What the Plan can forecast is the capacity of power plants to be installed year by year for meeting the future demand for electricity, during the next 20 years. The actual type of plant, and the fuel, should be determined only after calling for bids, keeping the type of plant and fuels open, but specifying the requirements for performance and environmental impacts in detail. Once the bids are evaluated, it will be possible to say which option provides the least cost generation, at the time of installing the plant.

PRESIDENT’S TARGET ON RENEWABLE ENERGY SHARE

It is noted that the renewable share, in total electricity generation, as given in the draft Plan, is only 36% by 2030. The CEB has a long way to go in reaching the President’s target of 70% for this by 2030. It appears that the PUCSL insisting that the CEB conforms to the requirements of the Act and trying to get the CEB to work towards achieving the President’s target, is the crime it has done to have it closed down. It is the responsibility of persons serving as advisors to the President, and the Prime Minister, to place before them the correct information rather than to mislead them. Otherwise, only the country will stand to lose its reputation when such wrong decisions get circulated, internationally, and the country becoming a laughing stock.