President’s energy directives ignored by the Power Ministry: Another Point of View

Dr Tilak Siyambalapitiya

Dr Janaka Rathnasiri laments (The Island 19 Feb 2021) that the Power Ministry has ignored the President’s directive to draw 70% of energy from renewable sources by 2030. I saw the approved costs of electricity production for 2019, published by the Public Utilities Commission (PUCSL).

PUCSL has also approved the prices to sell electricity to customers. Although various customers pay at various “approved” prices, the average income from such “approved” prices in 2019 was Rs 17.02 per unit. It is not only the Ministry, according to Dr Rathnasiri, ignoring the President; PUCSL is also breaking the law, which says prices and approved costs should be equal.

So there is already an illegal gap of Rs 21.59 minus 17.02 = Rs 4.57 per unit of electricity sold. If electricity prices are not to be increased, as stated by many in the government and PUCSL, let us say the following: Distribution costs should decrease by 0.57 Rs per unit. Generation costs should decrease by Rs 4.00 per unit.

PUCSL also published the approved cost of purchasing or producing electricity from various sources for 2019. The actual energy values were different to what was approved, but let us stick to PUCSL approved figures:

I suggest Dr Rathnasiri fills-up the following table, to show how much electricity will cost in 2030 to produce and deliver, if the President’s 70% target is to be achieved and for PUCSL to abide by the law. Let us assume that electricity requirement in 2030 will be double that of 2019.

Since PUCSL has to save Rs 4 from 13.92, the average selling price for energy should be Rs 13.92 minus 4.00 = Rs 9.92. With a target network loss of 7% (in 2019 it was 8.4%), the average cost of production has to be Rs 9.27 per unit. Eight cages have to be filled-up by Dr Rathnasiri.

In 2012, PUCSL approved the energy cost of electricity produced from coal power to be 6.33 Rs per kWh. In 2019, PUCSL approved 9.89 (56% increase). For renewable energy, it was 13.69 in 2012, and 19.24 in 2019 (a 40% increase, but double the price of electricity from coal fired generation). In 2012, rooftop solar was not paid for: only give and take, but now paid Rs 22, against Rs 9.89 from coal. There seems to be something wrong. The price reductions of renewable energy being promised, being insulated from rupee depreciation, are not happening? Either Sri Lanka must be paying too little for coal, or it may be renewable energy is severely over-priced?

On coal we hear only of some corruption every now and then; so Sri Lanka cannot be paying less than it costs, for coal.

Enough money even to donate
vaccines

Another reason for the Ministry of Power to ignore the President’s directive may be the Ministry’s previous experience with similar Presidential directives. In 2015, the President at that time cancelled the Sampur coal-fired power plant, and the Ministry faithfully obliged. That President and that Prime Minister then played ball games with more power plants until they were thrown out of power, leaving a two-billion-dollar deficit (still increasing) in the power sector. Not a single power plant of any description was built.

Where is this deficit? You do not have to look far. In the second table, replace 24.43 with 9.89, to reflect what would have happened if Sampur was allowed to be built. The value 12.79 will go down to 8.55, well below the target of Rs 9.27 per unit to produce. Not only would CEB and LECO report profits, but the government too could have asked for an overdraft from CEB to tide over any cash shortfalls in the treasury. All this with no increase in customer prices. Producers of electricity from renewable energy could enjoy the price of 19.24 Rs per unit. And that blooming thing on your rooftop can continue to enjoy Rs 22 per unit. The Minister of Power, whom Dr Rathnasiri wants to replace with an army officer, would have been the happiest.

In the absence of Sampur (PUCSL’s letter signed by Chairman Saliya Mathew confirmed cancellation and asked CEB not to build it), PUCSL approved electricity to be produced at Rs 21.59 and sold at Rs 17.02 per unit. The annual loss would be Rs (21.59 – 17.02) x 15,093 = Rs 69 billion per year of approved financial loss. Sri Lanka has a Telecom regulator, an Insurance regulator, a Banking regulator, who never approve prices below costs. Sometime ago the telecom regulator asked the operators to raise the prices, when operators were proposing to reduce prices amidst a price war. But the electricity industry regulator is different: he approves costs amounting to 27% more than the price, not just once but, but continuously for ten long years !

That is 370 million dollars per year as of 2019, the economy is spending, and for years to come, to burn oil (and say we have saved the environment). Did the Minister of Health say we are short of 160 million dollars to buy 40 million doses of the vaccine? Well, being a former Minister of Power, she now knows which Presidential “order” of 2015 is bleeding the economy of 370 million dollars per year, adequate to buy all vaccines and donate an equal amount to a needy country.

Prices are the production costs approved by PUCSL for 2019. The selling price approved by the same PUCSL was Rs 9.27 per unit.