More on inconsistencies and conflicts among Acts

Closure of Public utilities Commission – II

By Dr Janaka Ratnasiri

This is further to the writer’s piece on the same title appearing in The Island of 07.12.2020. See https://island.lk/closure-of-public-utilities-commission-cutting-off-the-nose-to-spite-the-face/.

LETTER FROM PRESIDENT’S SECRETARY

The organization under scrutiny, the Public Utilities Commission of Sri Lanka (PUCSL), was established in 2002 through an Act of Parliament No. 35 of 2002, mainly for the purpose of regulating the utilities industries in the country. Initially, the electricity and water service industries came under the Act. Later, through a resolution passed in the Parliament, the Petroleum Industry was also included.

The Commission comprises five members appointed by the Minister on the recommendation of the Constitutional Council. However, any member could be removed for any alleged unbecoming reason, only after the Minister submitting a report to Parliament, including the complaint against the member, as well as the member’s representations, and the majority accepting the recommendation for the removal of the member. Under such a background for the removal of a Commission member, it is unlikely that the President’s Secretary has the powers to close down the Commission altogether.

Further, it appears that in instructing to close down the PUCSL, natural justice has not been exercised, which requires that a person, or an institute, is given adequate notice, receive a fair and unbiased hearing, before a decision is made against the person/institute. If the Government felt that the PUCSL was responsible for the alleged delays in building power plants and implementing generation plans, the logical action the Government should have taken was to appoint a competent and unbiased committee to examine the allegations and make recommendations, after giving a hearing to the PUCSL’s explanations.

Even if the allegations are found valid, the correct course of follow-up action would have been to either remove the Chairman, or the Director General, if they are found responsible, or amend the Act, and certainly not close down the Commission. If the government still feels that the PUCSL is not wanted, an Act needs to be passed in Parliament to repeal the original PUCSL Act. The writer believes the President’s Secretary is well aware of this procedure. Further, in an hour-long interview given by him to a TV Channel on Sunday (6th) which went past midnight, he described how he takes decisions on important national issues. In that context, it is very unlikely that the alleged letter was issued by him.

Perhaps, the response of the government Parliamentarians, claiming that the letter was a fake, when the matter was taken up by a member in the Opposition, may have some truth. According to media reports, their attempts to contact the Secretary to the Treasury to verify the authenticity of the letter ended up with no success. If the letter is indeed a fake, the government should find out who originated it and prosecute him for dis-reputing the government.

RELATIONSHIP BETWEEN THE PUCSL AND THE CEB

Nevertheless, it is necessary to clarify certain matters pertaining to these two organizations, the PUCSL and the CEB, irrespective whether the letter is a fake or not. This is because there is a burning issue between them as evidenced from the remarks made in the Budget Speech and by the CEB Chairman, described in the writer’s previous article. Hence this write-up is published.

In the first half of the last century, electricity was available only in Municipal and Urban Council areas, and they themselves generated the electricity and distributed it within their own jurisdiction areas under the general supervision of the Department of Government Electrical Undertakings. With the development of the Laxapana Hydropower Complex, beginning 1950, and building of a national grid to transmit the electricity generated to the rest of the country, the Ceylon Electricity Board (CEB) was established under Parliament Act No. 17 of 1969. The CEB has been granted powers to generate, transmit and distribute electricity in bulk or otherwise, under Article 11 of this Act.

The Public Utilities Commission of Sri Lanka (PUCSL) was established mainly for the purpose of regulating the utilities industries in the country, including the electricity industry. In order to give effect to this provision in this Act, the Sri Lanka Electricity Act, No. 20 of 2009 was passed for the purpose of regulating the electricity industry. By Article 2(1) of the Act, the administration of the provisions of this Act was vested in the PUCSL and the Commission shall exercise, perform and discharge all the powers, functions and duties as are conferred on or assigned to it under this Act.

Among the functions vested in the PUCSL under Article 3(1) of the Electricity Act No. 20 are the following:

to act as the economic, technical and safety regulator for the electricity industry in Sri Lanka,

to advise the Government on all matters concerning the generation, transmission, distribution, supply and use of electricity in Sri Lanka; and

to approve such technical and operational codes and standards as are required from time to time to be developed by licensees;

It should be noted that the PUCSL serves as the regulator, not only for the electricity sector, but also for the water services and petroleum industries. Having such a regulator is an internationally accepted practice and it enhances the confidence among overseas parties to invest in these industries and the credit-worthiness of regulated industries. Any attempts to close down the PUCSL is therefore a very shortsighted measure, to say the least.

PERMISSION TO GENERATE, TRANSMIT AND DISTRIBUTE ELECTRICITY

Under the Article 9(2) of the Electricity Act No. 20, “No person other than the Ceylon Electricity Board, (CEB) shall be eligible to apply for the issue of a transmission licence”, while the CEB, a local authority or a company incorporated in Sri Lanka is eligible to apply for a transmission or a distribution licence. When a Chinese Company was planning to build a transmission line from its power plant being built at Hambantota to their industrial estate, they had to do it jointly with the CEB to circumvent this restriction.

In the past, generation licences have been issued to several independent power producers (IPP) for operating thermal power plants and to a large number of IPPs for operating renewable energy power plants. Whereas, only one company, a subsidiary of the CEB has been issued a distribution licence. It may be recalled that prior to the establishment of the CEB, generation and distribution functions, within the municipal and urban councils were handled solely by the respective local bodies.

Under the Article 13(3) of the Act, “a person shall not be granted both a transmission licence and (a) a generation licence; or(b) a distribution licence, while the Article 13(4) says “a person shall not be granted both a generation licence and a distribution licence”.

What this means is that both the PUCSL and the CEB were acting in violation of the Electricity Act No. 20, because the CEB was issued licences by the PUCSL for generation, transmission and distribution of electricity, disregarding the provisions in the Act.

In the Amended Electricity Act No. 31 of 2013, the Article 9 of the original Act was amended to “exempt any person or category of persons from the requirement of obtaining a licence for the generation or distribution of electricity, where such person engages in community-based electricity generating project on a non-commercial basis. However, as described before, under the CEB Act 79 of 1979, the CEB has the powers to generate, transmission and distribute electricity in bulk or otherwise.

So, there appears to be a conflict between the CEB Act and the Electricity Act No. 20. Neither the Electricity Act 20 of 2009 nor the Electricity (Amended) Act No. 31 of 2013 has repealed the CEB Act. Hence, the provisions of the CEB Act with regard to its powers to generate, transmit and distribute electricity still remain valid.

REFORMING THE POWER SECTOR

In order to comply with the provisions of the Electricity Act, it is necessary to have separate entities for undertaking the three functions – generation, transmission and distribution. For this purpose, a draft bill titled Electricity Reforms Bill was presented to the Parliament in 2002, outlining sector reforms comprising restructuring of the electricity industry by breaking the Ceylon Electricity Board (CEB) and Lanka Electricity Company (LECO) into several independent state-owned companies to carry out generation, transmission, and distribution functions.

The Bill when presented to the Parliament brought in strong protests from many quarters including CEB trade unions and other trade unions as well as from several political parties. They saw this Bill as an initial step towards privatizing the CEB and consequently loss of employment for its staff. Once the government gave the workers an assurance that the companies formed will hold 51% share by the government and that the workers’ rights will be safeguarded, the protests died down and the Bill was passed in March 2002.

It was gazetted as Electricity Reforms Act No. 28 of 2002 on 13 December 2002. However, the necessary order to give effect to the Act was not gazetted by the Minister and as a result the Act was left in abeyance, until it was repealed by Article 63(1) of the Electricity Act No. 20 of 2009.

However, considering the need to unbundle the CEB, including compliance with the Electricity Act and also to make its administration more flexible, the writer published an article in The Island of 07.12.2020, highlighting the advantages that could accrue by unbundling the CEB as recommended by several international consultants. The article is accessible via the link: https://island.lk/power-sector-reforms-urgent-need-to-revisit-them/.

CEB’S LONG-TERM GENERATION EXPANSION PLAN

In Article 13 of the Sri Lanka Electricity (Amended) Act No. 31 of 2013, the Section 43 of the principal enactment was amended and the following section is substituted: (2) A transmission licensee shall, based on the future demand forecast as specified in the Least Cost Long Term Generation Expansion (LCLTGE) Plan prepared by such licensee and as amended after considering the submissions of the distribution and generation licensees and approved by the Commission, submit proposals to proceed with the procuring of any new generation plant or for the expansion of the generation capacity of an existing plant, to the Commission for its written approval.

Though the requirement that procuring of any new generation plant or expansion of generation capacity should be based on the LCLTGE Plan prepared by the CEB has been incorporated into the Act, the concept of a LCLTGE Plan itself is highly flawed, as described in the writer’s previous article. Hence, the Act itself is placed on an unsound footing when it specifies that compliance with the Plan is necessary to proceed with a project to build a new power plant. The other reason is that the Plan is updated once in two or three years and the requirements specified in the Plan with respect to the type of plants and their capacities keep changing. Hence, it is difficult to ensure compliance with such a Plan.

In the proposed amendments to the Acts in the Electricity Sector, priority needs to be given to exclude the reference to the compliance of any new power project with the CEB’s LCLTGE Plan for reasons given above.

SRI LANKA SUSTAINABLE ENERGY AUTHORITY’S ROLE

The Sri Lanka Sustainable Energy Authority (SLSEA) was established under the SLSEA Act No. 35 of 2007, with the objective to “(a) identify, assess and develop renewable energy resources with a view to enhancing energy security and thereby derive economic and social benefits to the country and (b) develop a conducive environment for encouraging and promoting investments for renewable energy (RE) development in the country”. The idea was to promote the generation of electricity through renewable energy projects. However, there are many barriers put in against this.

The Act specifies that no person shall engage in or carry on an on-grid (Article 16) or off-grid (Article 23) renewable energy project .. except under the authority of a permit issued by the Authority, and the person who is desirous of engaging in and carrying on an on-grid renewable energy project shall make an application to the Director-General for the same in the prescribed form together with the prescribed fee and the prescribed documents. The fee for issuing the application form, the writer understands, is LKR 100,000 irrespective of the size or the type of the project.

Further, the SLSEA Act says that “a permit issued on approval of an application .. shall be valid for a period of twenty (20) years, provided that the developer commences the project and begins to generate electricity within two years of being issued with the permit. At the end of the period of twenty years, the Board may .. extend the period, of validity of the permit by a further period, not exceeding twenty (20) more years. Does this mean that after the lapse of 40 years, the 100 MW wind power plant being commissioned today (8th) at a cost of USD 150 million, will have to be sold for scrap?

Then there is another problem faced by an investor of an RE project. According to the SLSEA Act, he has to obtain a permit upon payment of a fee, from the SLSEA to commence the project. But the Electricity Act No. 31 says that he has to obtain a generation permit from the PUCSL for the same project. Then, at the end of the project, he has to get the approval of the CEB to get the project output connected to the grid and sell power to the CEB. In the past, several projects permitted by the SLSEA have been delayed for years by the CEA citing various excuses which would discourage the private sector to invest on renewable energy projects in Sri Lanka. In any case, what is the necessity to have so many permits for a single project?

PROPOSED AMENDMENTS TO ELECTRICITY SECTOR ACTS

The 2021 Budget has made a proposal “to amend the Public Utilities Commission Act and the Ceylon Electricity Board Act to allow the rapid implementation of projects”. There are actually five (5) Parliamentary Acts that govern the development of the electricity sector in the country. These are CEB Act No. 29 of 1979, PUCSL Act No. 35 of 2002, SLSEA Act No. 35 of 2007, Electricity Act No. 20 of 2009 and Electricity (Amendment) Act No. 31 of 2013.

Naturally, there will be conflicts and inconsistencies among them, making decision making and implementation difficult. Limited space does not allow the writer to list these deficiencies one by one. A few, described briefly in this write up above, are summarized below.

Conflict in the CEB’s power to generate, transmit and distribute electricity

Removal of the compliance with the CEB’s Least Cost Long Term Generation Expansion Plan

Multitude of permits required for undertaking renewable energy projects

Community RE projects exempted a permit under Elect. Act No. 31 but not under the SLSEA Act.

Need to unbundle the CEB for greater efficiency and ease in operations

In addition, often the Power Purchase Agreements (PPA) are referred to the Attorney General which causes further delays in granting approvals for the projects and sometimes denial for not conforming to the Act.

CONCLUSION

It is desirable if a competent committee comprising representatives from the Ministry of Power, Ministry of Renewable Energy, Ministry of Finance, Legal Draftsman’s Dept, PUCSL, CEB, SLSEA as well as representatives from the IPP industry, Renewable Energy Industry and an independent academic be appointed to examine these Acts and make recommendations necessary to streamline the project approval process and improve the general efficiency of the system for rapid utilization of RE sources in the electricity sector ultimately leading to realization of the President’s target of achieving 70% of electricity generation by 2030 from renewable sources.